-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WuCRmB3BlIyM3g/N1fvHnLwqtDd6gqNJAnqE1ak2jzKnTSy0Sdk76Bb1a6x1B5BO glrWETS1GKp4wc03hrR0jQ== 0000892569-01-501068.txt : 20020410 0000892569-01-501068.hdr.sgml : 20020410 ACCESSION NUMBER: 0000892569-01-501068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOTHERAPEUTICS INC CENTRAL INDEX KEY: 0000831547 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 930979187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28782 FILM NUMBER: 1789648 BUSINESS ADDRESS: STREET 1: 157 TECHNOLOGY DR STREET 2: STE J-821 CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9497886700 MAIL ADDRESS: STREET 1: 157 TECHNOLOGY DR STREET 2: STE J-821 CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: AMERICUS FUNDING CORP DATE OF NAME CHANGE: 19920703 10-Q 1 a77225e10-q.txt FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 000-28782 NEOTHERAPEUTICS, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 93-0979187 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 157 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (949) 788-6700
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date: Class Outstanding at November 10, 2001 ----- -------------------------------- Common Stock, $.001 par value 22,977,282 NEOTHERAPEUTICS, INC. (A Development-Stage Enterprise) TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Statement Regarding Financial Information.................................................... 3 Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000..................................................................... 4 Condensed Consolidated Statements of Operations for the three-month periods ended September 30, 2001 and 2000 (unaudited)................................................... 5 Condensed Consolidated Statements of Operations for the nine-month periods ended September 30, 2001 and 2000 and for the period from inception (June 15, 1987) to September 30, 2001 (unaudited)............................................................ 6 Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2001 and 2000 and for the period from inception (June 15, 1987) to September 30, 2001 (unaudited)............................................................ 7 Notes to Condensed Consolidated Financial Statements ........................................ 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION ........ 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 21 PART II. OTHER INFORMATION ........................................................................... 22 ITEM 2. CHANGES IN SECURITIES ....................................................................... 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 22
2 NEOTHERAPEUTICS, INC. (A Development-Stage Enterprise) FORM 10-Q FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENT REGARDING FINANCIAL INFORMATION The consolidated financial statements included herein have been prepared by NeoTherapeutics, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The Company recommends that you read the financial statements included herein in conjunction with the audited financial statements and notes thereto included in Amendment No. 1 on Form 10-K/A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission. 3 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 607,774 $ 6,158,375 Marketable securities and short-term investments 7,564,624 5,311,215 Other receivables 452,545 424,059 Prepaid expenses and refundable deposits 340,065 418,010 ------------- ------------- Total current assets 8,965,008 12,311,659 PROPERTY AND EQUIPMENT, at cost: Equipment 4,551,270 3,412,932 Leasehold improvements 1,946,616 1,853,227 Accumulated depreciation and amortization (2,419,379) (1,850,076) ------------- ------------- Property and equipment, net 4,078,507 3,416,083 OTHER ASSETS 232,935 53,242 ------------- ------------- Total assets $ 13,276,450 $ 15,780,984 ============= ============= LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 2,828,257 $ 3,965,506 Accrued payroll and related taxes 264,359 265,383 Note payable to related party 135,574 285,574 Current portion of capitalized lease obligations 531,314 593,609 ------------- ------------- Total current liabilities 3,759,504 5,110,072 OTHER LIABILITIES: Capital lease obligations, net of current portion 237,112 474,004 Deferred revenue and other liabilities 178,423 86,532 ------------- ------------- Total liabilities 4,175,039 5,670,608 COMMITMENTS AND CONTINGENCIES (NOTE 3) MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES -- 7,280,111 STOCKHOLDERS' EQUITY: Preferred stock, par value $0.001 per share, 5,000,000 shares authorized: None issued or outstanding at September 30, 2001 and December 31, 2000 -- -- Common stock, par value $0.001 per share, 50,000,000 shares authorized: Issued and outstanding, 21,862,772 and 13,307,227 shares at September 30, 2001 and December 31, 2000, respectively 21,863 13,307 Additional paid in capital 126,915,832 100,599,263 Deferred compensation expense (2,195,824) (959,850) Unrealized gains on available-for-sale securities 102,058 763 Deficit accumulated during the development stage (115,742,518) (96,823,218) ------------- ------------- Total stockholders' equity 9,101,411 2,830,265 ------------- ------------- Total liabilities, minority interest and stockholders' equity $ 13,276,450 $ 15,780,984 ============= =============
The accompanying notes are an integral part of these condensed consolidated balance sheets. 4 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
THREE-MONTH THREE-MONTH PERIOD ENDED PERIOD ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 ------------ ------------ (UNAUDITED) (UNAUDITED) REVENUES $ 8,334 $ -- OPERATING EXPENSES: Research and development 4,710,184 10,499,016 General and administrative 1,506,390 1,276,871 ------------ ------------ TOTAL OPERATING EXPENSES 6,216,574 11,775,887 ------------ ------------ LOSS FROM OPERATIONS (6,208,240) (11,775,887) OTHER INCOME (EXPENSE), principally interest income (expense), net 85,077 (353,356) ------------ ------------ NET LOSS BEFORE MINORITY INTEREST AND INCOME TAXES (6,123,163) (12,129,243) MINORITY INTEREST 146,547 (1,091,312) ------------ ------------ NET LOSS BEFORE INCOME TAXES (5,976,616) (13,220,555) INCOME TAX EXPENSE 2,400 2,400 ------------ ------------ NET LOSS $ (5,979,016) $(13,222,955) ============ ============ BASIC AND DILUTED NET LOSS PER SHARE $ (0.39) $ (1.27) ============ ============ BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,581,759 10,382,731 ============ ============
The accompanying notes are an integral part of these condensed consolidated statements. 5 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 AND FOR THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO SEPTEMBER 30, 2001
NINE-MONTH NINE-MONTH INCEPTION PERIOD ENDED PERIOD ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) REVENUES $ 16,668 $ -- $ 513,796 OPERATING EXPENSES: Research and development 13,267,689 29,206,087 88,109,361 General and administrative 5,301,851 3,412,164 22,751,794 Settlement of litigation -- -- 2,458,359 ------------- ------------- ------------- TOTAL OPERATING EXPENSES 18,569,540 32,618,251 113,319,514 ------------- ------------- ------------- LOSS FROM OPERATIONS (18,552,872) (32,618,251) (112,805,718) OTHER INCOME (EXPENSE), principally interest income (expense), net 504,209 (1,188,585) (2,120) ------------- ------------- ------------- NET LOSS BEFORE MINORITY INTEREST AND INCOME TAXES (18,048,663) (33,806,836) (112,807,838) MINORITY INTEREST (48,453) (1,091,312) (1,512,050) ------------- ------------- ------------- NET LOSS BEFORE INCOME TAXES (18,097,116) (34,898,148) (114,319,888) INCOME TAX EXPENSE 2,400 2,400 17,600 ------------- ------------- ------------- NET LOSS $ (18,099,516) $ (34,900,548) $(114,337,488) ============= ============= ============= BASIC AND DILUTED NET LOSS PER SHARE $ (1.10) $ (3.69) ============= ============= BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,215,488 9,450,489 ============= =============
The accompanying notes are an integral part of these condensed consolidated statements. 6 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 AND FOR THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO SEPTEMBER 30, 2001
NINE MONTHS NINE MONTHS INCEPTION ENDED ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (18,099,516) $ (34,900,548) $(114,337,488) Non-cash items included in net loss: Minority interest in net loss (162,380) -- (162,380) Depreciation and amortization 569,303 433,170 2,543,936 Amortization of debt discount 9,827 9,768 31,663 Compensation expense arising from the grant of warrants and stock options (below fair market value) 1,155,144 561,034 3,109,354 Issuance of common stock for services 22,750 23,500 46,250 Beneficial conversion feature related to preferred stock of consolidated subsidiary -- 1,091,312 1,463,597 Amortization of discount on convertible debentures and beneficial conversion feature -- 397,082 539,277 Issuance of common stock in settlement of litigation -- -- 2,458,359 Compensation expense for extension of Debt Conversion Agreements, net -- -- 503,147 Gain on sale of assets -- -- (5,299) Changes in operating assets and liabilities: (Increase) Decrease in other receivables 49,459 (8,077,040) (374,354) Increase (Decrease) in accounts payable and accrued expenses (1,137,249) 1,646,516 2,507,103 Increase (Decrease) in accrued payroll and related taxes (1,024) 40,432 903,053 Increase in deferred revenue and other liabilities 91,897 8,558 178,428 (Repayment of) proceeds from notes payable to related parties, net (150,000) (272,730) 335,168 Decrease in employee expense reimbursement and accrued interest to related parties -- -- 300,404 ------------- ------------- ------------- Net cash used in operating activities (17,651,789) (39,038,946) (99,959,782) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,034,038) (560,667) (6,380,500) Redemption (purchases) of marketable securities and short-term investments, net (2,152,114) (199,938) (7,462,566) (Increase) decrease in other assets (179,693) 68,005 (555,410) Payment of organization costs -- -- (66,093) Proceeds from sale of equipment -- -- 29,665 Issuance of notes receivable -- -- 100,000 ------------- ------------- ------------- Net cash used in investing activities (3,365,845) (692,600) (14,334,904)
- Continued - 7 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS NINE MONTHS INCEPTION ENDED ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock and warrants, net of related offering costs and expenses 21,772,736 28,578,957 99,493,577 Proceeds from issuance of common stock in consolidated subsidiary 1,000 -- 1,000 Proceeds from preferred stock issuance, net of offering costs -- -- 3,608,788 Proceeds from sale of preferred stock of consolidated subsidiary, net of issuance cost -- 4,257,349 6,488,493 Proceeds from exercise of stock options and warrants -- 29,389 863,585 Proceeds from sale of convertible debentures, net of issuance costs -- 9,466,704 9,387,321 Proceeds from long-term debt -- -- 2,660,448 Payments made on capital lease obligations (506,703) (285,714) (1,640,118) Proceeds from (issuance of) notes receivables From officers and directors for exercise of stock options -- 61,560 (225,000) Purchase of preferred stock of consolidated subsidiary (4,684,193) -- (4,684,193) Payment of dividend on preferred stock of consolidated subsidiary (815,807) -- (815,807) Purchase of Series C Preferred Stock (300,000) -- (300,000) Dividends paid to preferred stockholders -- -- (136,246) ------------- ------------- ------------- Cash at acquisition -- -- 200,612 ------------- ------------- ------------- Net cash provided by financing activities 15,467,033 42,108,245 114,902,460 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (5,550,601) 2,376,699 607,774 Cash and cash equivalents, beginning of period 6,158,375 6,726,220 -- ------------- ------------- ------------- Cash and cash equivalents, end of period $ 607,774 $ 9,102,919 $ 607,774 ============= ============= =============
- Continued - 8 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Fixed assets financed by capital leases $ 197,689 $ -- $ 2,408,544 =========== =========== =========== Unrealized (Gain) Loss on marketable securities $ (101,295) $ 11,623 $ 102,821 =========== =========== =========== Stock and stock options granted to employees and non-employees below fair market value $ 2,391,118 $ -- $ 3,350,968 =========== =========== =========== Conversion of preferred stock and convertible debentures into shares of common stock $ 1,677,465 $ 3,450,000 $ 7,009,915 =========== =========== =========== Retirement of preferred stock $ 3,977 $ -- $ 39,346 =========== =========== =========== Reclassification of warrants $ 453,348 $ -- $ 453,348 =========== =========== =========== Minority interest share of proceeds from issuance of common stock in consolidated subsidiary $ (100) $ -- $ (100) =========== =========== =========== Dividends on preferred stock paid in shares of common stock $ 6,808 $ -- $ 89,120 =========== =========== =========== Financing of insurance policies and other assets $ -- $ 379,058 $ 379,058 =========== =========== =========== Issuance of warrants in connection with equity and debt financings $ -- $ 1,488,393 $ 1,878,003 =========== =========== =========== Conversion of other accrued liabilities to shares of common stock $ -- $ 80,444 $ 132,548 =========== =========== =========== Conversion of notes payable to related parties into shares of common stock $ -- $ -- $ 500,000 =========== =========== =========== Conversion of accrued interest into notes Payable to related parties $ -- $ -- $ 300,404 =========== =========== =========== Conversion of other accrued liabilities to shares of common stock $ -- $ -- $ 1,442,567 =========== =========== =========== Conversion of revenue participation units into shares of common stock $ -- $ -- $ 676,000 =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements. 9 NEOTHERAPEUTICS, INC. AND SUBSIDIARIES (A Development-Stage Enterprise) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (Unaudited) 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF BUSINESS: In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements include all adjustments (which consist primarily of normal recurring adjustments) necessary for a fair presentation of its consolidated financial position at September 30, 2001, and consolidated results of operations and cash flows for the periods presented. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted and should be read in conjunction with the Company's audited financial statements included in Amendment No. 1 on Form 10-K/A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 filed with the Securities and Exchange Commission. Results of operations for interim periods are not necessarily indicative of results to be expected for the full year. Certain prior year and quarterly amounts have been reclassified to conform to the current period presentation. NeoTherapeutics, Inc. (the "Company") was incorporated in Colorado as Americus Funding Corporation ("AFC") in December 1987. In August 1996, AFC changed its name to "NeoTherapeutics, Inc." and in June 1997, the Company was reincorporated in the state of Delaware. The Company has four subsidiaries as of September 30, 2001: NeoTherapeutics GmbH, wholly owned, incorporated in Switzerland in April 1997 ("NeoGmbH"); NeoGene Technologies, Inc., 88.4% owned, incorporated in California in October 1999 ("NeoGene"); NeoOncoRx, Inc., 90.48% owned, incorporated in California in November 2000 ("NeoOncoRx"); and NeoTravel, Inc., wholly owned, incorporated in California in April 2001 ("NeoTravel"). Advanced ImmunoTherapeutics, Inc., a previously wholly owned subsidiary of NeoTherapeutics, Inc., was merged into NeoTherapeutics, Inc. in September 2001. All references to the "Company" hereinafter refer to NeoTherapeutics, Inc. and its subsidiaries as a consolidated entity. The Company is a development stage biopharmaceutical enterprise principally engaged in the discovery and development of novel therapeutic drugs intended to treat neurological diseases, such as memory deficits associated with Alzheimer's disease and aging, spinal cord injuries, Parkinson's disease, neuropathy, and other neurodegenerative and psychiatric diseases. The Company is also engaged, through NeoGene, in research involving functional genomics to create new drug targets for out-licensing and, through NeoOncoRx, has recently expanded its clinical development program to include in-licensing and further development of later stage anti-cancer drugs. The accompanying consolidated financial statements include the results of NeoTherapeutics, Inc. and its subsidiaries. As shown in the accompanying financial statements, the Company continues to incur significant losses and negative cash flow from operations. At September 30, 2001 the Company had cash, cash equivalents, marketable securities and short-term investments of approximately $8.1 million. The Company is currently consuming cash at an average rate of approximately $2.1 million per month. The Company is seeking to arrange additional equity financing, however, no assurances can be given that the Company will be successful in raising new equity financing. Unless the Company secures sufficient additional financing prior to March 31, 2002, the Company's independent auditors have informed the Company that the auditor's report on the December 31, 2001 financial statements will include a going concern qualification. RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") effective January 1, 2001. Under the provisions of SFAS 133, the Company is required to recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure these instruments at fair value. The adoption of SFAS 133 did not have a material effect on the Company's financial statements. 10 In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). This Statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16. "Business Combinations," and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. The Company adopted SFAS 141 for all business combinations initiated after June 30, 2001. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." This pronouncement addresses, among other things, how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Goodwill shall no longer be amortized but shall be assessed at least annually for impairment using a fair value methodology. The Company adopted this statement for all goodwill and other intangible assets acquired after June 30, 2001 and for all existing goodwill and other intangible assets beginning January 1, 2002. The Company does not anticipate that the adoption of SFAS 142 will have a significant effect on its financial position or the results of its operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 (with earlier application being encouraged). We do not expect the adoption of SFAS 143 to have a material impact on our financial condition and results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that Opinion). The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, with early application encouraged and generally are to be applied prospectively. We do not expect the adoption of SFAS 144 to have a material impact on our financial condition and results of operations. 2. LICENSING AGREEMENTS In March 2001, the Company's majority owned subsidiary, NeoGene Technologies, Inc. ("NeoGene"), entered into a licensing agreement with Pfizer Inc. ("Pfizer"). Under the terms of the agreement, Pfizer will make use of NeoGene's technology to screen potential drug candidates. In return, NeoGene received an initial payment of $100,000 and is entitled to receive milestone payments which could total up to $12 million if Pfizer receives final market approval from the FDA for a drug candidate identified using NeoGene's technology under the agreement; however, there can be no assurance that the development project will be successful and result in the Company receiving any milestone payments. The initial payment has been recorded as deferred revenue and is being recognized as revenue over a three-year period commencing April 2001. The Company is recognizing licensing revenues in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." During July 2001, the Company's subsidiary, NeoOncoRx, Inc., finalized an exclusive worldwide license for an anti-cancer compound Neoquin(TM) (E09) and 79 related analogs from The Netherlands based NDDO Research Foundation. Under the terms of the agreement the Company paid an initial licensing fee of $100,000 and will issue 30,000 shares of the Company's common stock subject to certain conditions. Further, the Company is obligated to pay milestone payments which could total up to $800,000, if the Company receives final market approval in the USA, major European markets, Japan and Australia. The Company will incur the development cost under the terms of the agreement. The Company will also pay royalties to NDDO Research Foundation if sales should ever materialize from Neoquin(TM). During September 2001, the Company's subsidiary, NeoOncoRx, Inc., acquired the worldwide rights to develop and market Satraplatin (JM-216) from Johnson Matthey plc., a major multi-national chemical company. Under the terms of the agreement the Company paid an initial licensing fee of $100,000, and is obligated to pay milestone payments that could total up to $6,900,000 if the 11 Company submits an NDA in the United States, receives FDA approval of the NDA, receives approval in the first European Union state for a new drug application, receives approval by the FDA for a second drug indication, and receives approval in the first European Union state for a second drug indication. The Company will also pay royalties to Johnson Matthey plc. if sales should ever materialize from Satraplatin. 3. COMMITMENTS AND CONTINGENCIES Research and Fellowship Grants: The Company periodically makes non-binding commitments to various universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further the Company's research programs. As of September 30, 2001, the Company had committed to pay, through May 2005, approximately $1.1 million for such grants and fellowships. Grant expense for the nine-month periods ended September 30, 2001 and 2000, were approximately $0.6 million and $1.0 million, respectively. Major Clinical Trials: In April 2001, the Company continued the study of its lead compound Neotrofin(TM), and began a 500 patient trial for Alzheimer's disease. In addition, in March 2001 the Company began two smaller trials of Neotrofin(TM) for spinal cord injury and Parkinson's disease. The three trials will be managed internally and are estimated to cost an aggregate of approximately $9.7 million over an eighteen-month period. The Company believes that it will have preliminary results for its Neotrofin(TM) 500 patient trial for Alzheimer's disease during the first quarter of 2002. 4. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES At December 31, 2000, minority interest in consolidated subsidiaries consisted of an aggregate of approximately $7 million in Series A and Series B Preferred Stock of NeoGene and other equity instruments of NeoGene, the percentage book value in NeoGene of outstanding shares owned by minority common shareholders, and the percentage book value in NeoOncoRx of outstanding shares owned by minority common shareholders. During the nine-month period ended September 30, 2001, all of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock of NeoGene were either converted into shares of NeoTherapeutics or purchased by NeoTherapeutics (See Note 5). At September 30, 2001, minority interest in consolidated subsidiaries consists of the percentage book value in NeoGene and NeoOncoRx of outstanding shares owned by minority shareholders. From time to time, since inception of NeoGene and through September 30, 2001, losses incurred by NeoGene have exceeded the minority shareholders' percentage book value in NeoGene. Therefore, at times when the minority interest in consolidated subsidiaries was zero, the majority shareholder, NeoTherapeutics, recorded 100% of the losses of NeoGene. Through September 30, 2001, NeoTherapeutics absorbed approximately $170,000 in minority shareholder losses that will be credited back to NeoTherapeutics if future NeoGene earnings materialize. From time to time, since inception of NeoOncoRx and through September 30, 2001, losses incurred by NeoOncoRx have exceeded the minority shareholders' percentage book value in NeoOncoRx. Therefore, at times when the minority interest in consolidated subsidiaries was zero, the majority shareholder, NeoTherapeutics, recorded 100% of the losses of NeoOncoRx. Through September 30, 2001, NeoTherapeutics absorbed approximately $110,000 in minority shareholder losses that will be credited back to NeoTherapeutics if future NeoOncoRx earnings materialize. 5. CONVERTIBLE REDEEMABLE PREFERRED STOCK On December 18, 2000, NeoGene entered into an agreement with an institutional investor for the issuance and sale of its Series B Preferred Stock and warrants to purchase common stock of Neotherapeutics and NeoGene for aggregate consideration of $2.0 million. Under the provisions of the agreement, NeoGene issued and sold to the investor a total of 44,445 shares of its Series B Preferred Stock, at a purchase price of $45 per share, and issued a five year warrant to purchase a total of 9,387 shares of NeoGene common stock, at an exercise price of $45 per share. The investor also received a five year warrant to purchase an aggregate of 30,000 shares of the NeoTherapeutics' common stock, at an exercise price of $6.10 per share. The Company also granted an exchange right to the investor that allowed the investor to exchange its shares of Series B Preferred Stock for preferred stock of the Company. In June 2001, the investor exercised its right to exchange all of the Series B Preferred stock then held by the investor for 200 shares of the Company's 7% Series C Preferred stock. Under the terms 12 of the exchange right, the investor forfeited 4,693 or 50% of the previously granted five year warrants to purchase shares of NeoGene common stock at an exercise price of $45 per share. The shares of the Company's 7% Series C Preferred Stock were redeemable, under certain conditions at the option of the holder, and each share is convertible into a number of shares of common stock equal to $10,000 divided by the lesser of (i) 100% of the average of the lowest seven closing bid prices of our common stock in the previous 30 trading days, or (ii) $5.97. In August 2001, the holder of the Company's 7% Series C Preferred Stock converted 170 shares of the 7% Series C Preferred Stock into 482,635 common shares of NeoTherapeutics. In September 2001, NeoTherapeutics purchased the remaining 30 shares of the Company's 7% Series C Preferred Stock for $300,000 plus accrued dividends and a settlement fee of approximately $72,000. The 30 shares of NeoTherapeutics' 7% Series C Preferred Stock are recorded as an offset to Stockholders' Equity. On August 13, 2001, NeoTherapeutics purchased from two institutional investors the Series A Preferred Stock of NeoGene for $5.5 million representing the $5.0 million face value of the preferred stock plus a $500,000 redemption fee. The difference between the book value of the preferred stock and the amount paid (approximately $0.8 million) was recorded as a charge to accumulated deficit. The Company also paid accrued dividends of approximately $220,000 to the holders of the preferred stock. 6. STOCKHOLDERS' EQUITY Common Stock: On January 2, 2001, the Company filed with the Securities and Exchange Commission a "shelf" registration statement permitting the sale of securities with a maximum aggregate public offering price of $50 million. At September 30, 2001, approximately $25.0 million remained available under the registration statement. On January 30, 2001, the Company issued to two investors 1,070,336 shares of its common stock under the first reset provision contained in the adjustable warrants issued in connection with the September 29, 2000 sale of 968,524 shares of common stock for $8 million. On May 15, 2001 the Company also issued an additional 900,000 shares of common stock to the two investors in respect of the second and final reset provision. The Company did not receive any consideration as a result of it issuing shares pursuant to the reset provisions of this financing transaction. The reset provisions were part of an earlier sale of common stock and were previously accounted for as a partial allocation of the proceeds of that sale to common stock. As such, no further accounting is necessary on the date the reset provision was exercised. On February 2, 2001, the Company sold 1,627,756 shares of common stock under the shelf registration statement to a private investor for $3.5 million in cash. On March 8, 2001, the Company sold 1,250,000 shares of common stock under the shelf registration statement to a private investor for $5 million in cash. The investor also received five year warrants to purchase up to 125,000 shares of common stock at the exercise price of $5.00 purchase price per share. On April 6, 2001, in a special meeting, the stockholders of the Company approved the increase in authorized common stock from 25 million to 50 million shares. On April 17, 2001, the Company entered into a financing transaction with two private investor groups which provide, among other things, for (a) the sale of approximately 1,176,472 shares of the Company's common stock under the shelf registration statement for $6.0 million cash, (b) an option to place with the investor groups two tranches of convertible debenture notes of $10 million and $8 million within approximately 30 days and seven months of the initial closing, respectively, at the option of the Company (See Footnote 10, SUBSEQUENT EVENTS), and (c) five year warrants exercisable at 125% of the market price of the date of the respective closing of each of the aforementioned debenture issuances for a number of shares equal to 20% of the number of shares into which the debentures are initially convertible. The Company did not exercise the first option for the debenture tranche of $10 million and paid a break-up fee of $405,000 in July 2001, pursuant to the terms of the financing transaction of May 17, 2001. This fee was charged to general and administrative expense in the second quarter of 2001. On May 17, 2001, the Company sold to the aforementioned two private investor groups 1,400,000 shares of the Company's common stock under the shelf registration statement for $5.95 million cash. 13 On June 12, 2001, the Company entered into two securities sales agreements with an investment banking firm acting as an underwriter to sell the Company's common stock on a "best efforts" basis with the maximum aggregate public offering price under both agreements combined of $33.4 million. The securities will be offered as part of a Controlled Equity Offering, or CEO(SM). Under one of the sales agreements, the Company may sell up to $8.4 million of its common stock "at the market" or directly into the established trading market for the common stock. Under the other sales agreement, the Company may sell up to $25 million of its common stock in any manner other than "at the market". Under each agreement, if the Company and the underwriter agree to sell common stock on certain terms, the underwriter will use its commercially reasonable efforts to sell the securities up to the amount agreed upon, but will not be required to sell any specific number or dollar amount of securities. The net proceeds from the sales will be the aggregate sales price at which the securities were sold after deduction for the underwriter's commission/discount of up to 4%. The Company will issue to the underwriter five year warrants to purchase shares of its common stock in an amount equal to 10% of the number of shares of common stock sold by us pursuant to the offering at an exercise price per share equal to 130% of the volume weighted average price at which such shares were issued. On June 22, 2001, the Company sold to its employees through the provisions of its Employee Stock Purchase Plan (the "ESPP"), 40,390 shares of the Company's common stock for approximately $90,100. Pursuant to the ESPP, the shares were sold at a 15% discount to market on the date of purchase. On August 14, 2001, the Company sold 600,000 shares of common stock under the shelf registration statement to an institutional investor for $2,010,000. There were 21,862,772 issued and outstanding shares of the Company's common stock as of September 30, 2001. In addition, security holders held options and warrants as of September 30, 2001 which, if exercised, would obligate the Company to issue up to an additional 8,705,383 shares of common stock, of which 2,408,950 shares are subject to options or warrants which are currently exercisable at the sole election of the holder. A substantial number of those shares, when issued upon exercise, will be available for immediate resale in the public market. 7. STOCK OPTIONS Stock option activity for the Company during the nine-month period ended September 30, 2001 is as follows:
OPTION SHARES PRICE --------- -------------- Outstanding at January 1, 2001 2,490,175 $3.75 --$13.00 Granted 560,000 3.77 -- 5.62 Exercised -- -- Forfeited (138,000) 4.063-- 13.00 --------- Outstanding at September 30, 2001 2,912,175 $3.75 --$13.00 =========
During the nine-month period ended September 30, 2001 and September 30, 2000, the Company recognized compensation expense for employees, directors and vested consultants' options aggregating $1,155,144 and $561,034, respectively. Options granted to consultants consist of options that vest both immediately and upon the occurrence of certain events as specified in the related agreements. 14 8. OPERATING SEGMENT AND RELATED INFORMATION The Company has adopted the Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures About Segments of an Enterprise and Related Information. The increased significance of one of its subsidiary business segments, NeoGene, is newly reportable under the standard. NeoGene's financial results are presented below. The accounting policies of NeoGene are the same as the policies utilized for the Company. The following schedule is the information related to the reportable segment (prior period data is not material):
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2001 ------------------ ------------------ Revenue: Genomics reportable segment $ 8,334 $ 16,668 =========== =========== Loss from Operations: Genomics reportable segment $ 656,670 $ 2,137,248 Neurology, oncology and other reportable segments 5,551,570 16,415,624 ----------- ----------- Total Loss from Operations $ 6,208,240 $18,552,872 =========== =========== Assets: Genomics reportable segment $ 3,133,603 Neurology, oncology and other reportable segments 10,142,847 ----------- Total assets $13,276,450 ===========
9. LOSS PER SHARE Basic and diluted loss per share for the three and nine-month periods ended September 30, 2001 are computed after increasing the net loss by dividends amounting to $815,807 paid to Series A Preferred Stock holders that resulted from the Company's purchase of the preferred stock. 10. SUBSEQUENT EVENTS On October 19, 2001, the Company's registration statement (File No. 333-64444) related to the "at the market" sales agreement filed with the Securities and Exchange Commission became effective. This registration statement allows for the sale of up to $8.4 million of the Company's common stock. Approximately 125,000 shares of common stock were sold through November 10, 2001, for aggregate cash proceeds of approximately $413,000. On October 19, 2001, NeoTherapeutics and an investment banking firm executed amendments to the sales agreements previously entered into by NeoTherapeutics and the investment banking firm on June 12, 2001, and to the advisory agreement previously entered into on April 11, 2001 and amended on June 12, 2001. The amendments relate primarily to modifications of the compensation provisions of the sales agreements. During November 2001, the Company's subsidiary, NeoOncoRx, Inc., acquired the worldwide rights to develop and market Elsamitrucin from Bristol-Myers Squibb Company. Under the terms of the agreement the Company paid an initial licensing fee of $100,000 and is obligated to pay milestone payments that could total up to $900,000 if the Company receives approval of an NDA by either the FDA or any equivalent foreign regulatory authority, whichever occurs first. We will also pay royalties to Bristol-Myers Squibb Company if sales should ever materialize from Elsamitrucin. On November 2, 2001, the Company filed a prospectus supplement for its existing shelf registration statement (File No. 333-53108) related to the $25 million sales agreement. Through November 10, 2001, approximately 950,000 shares of common stock have been sold pursuant to this prospectus supplement for aggregate cash proceeds of $3.8 million. On November 13, 2001, the Company decided not to exercise the second option for the debenture tranche of $8 million, pursuant to the April 17, 2001 financing transaction, as amended. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below under "Factors Affecting Future Operating Results." RESULTS OF OPERATIONS Overview: From the inception of the Company in 1987 through September 30, 2001, we incurred a cumulative net loss of approximately $114.3 million. We expect that our operating expenses will continue to decrease in the immediate future as compared to the same period last year, but to increase over the next several years as we expand our research and development and commercialization activities and operations. We expect to incur significant additional operating losses for at least the next several years unless such operating losses are offset, if at all, by licensing revenues under strategic alliances with larger pharmaceutical companies that we are currently seeking. Through September 30, 2001, the operations of our NeoGene subsidiary engaged in functional genomics were considered material under SFAS No. 131 and accordingly, segment information is presented herein. Three-Months Ended September 30, 2001 Compared to Three-Months Ended September 30, 2000: Revenue for the three-month period ended September 30, 2001 increased to $8,334 versus no revenue over the same period in 2000. The increase is due to the recognition of revenue from the initial receipt of funds from a licensing agreement between our NeoGene subsidiary and Pfizer, Inc. Under the terms of the agreement, Pfizer will make use of NeoGene's genomics technology to screen potential drug candidates. In return, NeoGene received an initial payment of $100,000 and is entitled to receive milestone payments which could total up to $12 million if Pfizer receives final market approval from the FDA for a drug candidate identified using NeoGene's technology under the agreement. However, there can be no assurance that the development project will be successful and result in us receiving any milestone payments. The initial payment was recorded as deferred revenue and is being recognized as revenue over a three-year period beginning April 2001. We are recognizing revenue in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." Research and development expenses for the three-month period ended September 30, 2001 decreased by approximately $5,789,000 or 55.1% over the same period in 2000. The decrease was due primarily to the termination of several contracts with an outside clinical research organization and the related clinical trials that the organization was conducting in 2000. In March and April 2001, we began new Phase 2 clinical trials of Neotrofin(TM) in Alzheimer's disease and other indications, at higher dose levels than administered in the previous trials. We estimate that these trials will cost, in aggregate, approximately $9.7 million over an eighteen-month period. These new trials are being managed internally and we have increased the number of employees and consultants for that purpose. Partially offsetting this overall decrease in research and development expenses were salaries that increased due to additional personnel, salary increases and related benefits, including a non-cash equity compensation charge for the three-month period ended September 30, 2001 of approximately $144,000. In the immediate future we expect our research and development costs to increase over the current period but decrease compared to the same period in the prior year due to the net savings from internally managing our clinical trial program, as compared to the higher cost of using an outside clinical research organization. Thereafter, we expect that such expenses will again increase as we expand our clinical trials on Neotrofin(TM), Neoquin(TM) and other drug candidates, as well as the other research activities at our subsidiaries. General and administrative expenses increased by approximately $230,000 or 18.0% from the same period in 2000 due primarily to increases in salaries and related benefit expenses from increased head count, including a non-cash equity compensation charge of approximately $94,000, general occupancy expenses and legal fees. We expect general and administrative expenses to increase in future periods in support of the expected increases in research and development activities, as well as sales and marketing activities, should we successfully bring one or more of our products to market. Net interest income for the three-month period ended September 30, 2001 increased by approximately $438,000 due primarily to a non-recurring charge to interest expense during the three-month period ended September 30, 2000. The increase includes approximately $72,000 of additional interest income during the current quarter from higher average cash balances resulting from the 16 investments of unused proceeds from recent equity financings. We expect our interest income to decrease in future periods due to the use of its funds in current operations, unless offset by revenues or additional equity or debt financings. Nine-Months Ended September 30, 2001 Compared to Nine-Months Ended September 30, 2000: Revenue for the nine-month period ended September 30, 2001 increased to $16,668 versus no revenue over the same period in 2000. The increase is due to the recognition of revenue from the initial receipt of funds from a licensing agreement between our NeoGene subsidiary and Pfizer, Inc. Under the terms of the agreement, Pfizer will make use of NeoGene's genomics technology to screen potential drug candidates. In return, NeoGene received an initial payment of $100,000 and is entitled to receive milestone payments which could total up to $12 million if Pfizer receives final market approval from the FDA for a drug candidate identified using NeoGene's technology under the agreement. However, there can be no assurance that the development project will be successful and result in us receiving any milestone payments. The initial payment was recorded as deferred revenue and is being recognized as revenue over a three-year period beginning April 2001. We are recognizing revenue in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." Research and development expenses for the nine-month period ended September 30, 2001 decreased by approximately $15,938,000 or 54.6% over the same period in 2000. The decrease was due primarily to the termination of several contracts with an outside clinical research organization and the related clinical trials that the organization was conducting in 2000. In March and April 2001, we began new Phase 2 clinical trials of Neotrofin(TM) in Alzheimer's disease and other indications, at higher dose levels than administered in the previous trials. We estimate that these trials will cost an aggregate of approximately $9.7 million over an eighteen-month period. We are managing these new trials internally and have increased the number of employees and consultants for that purpose. Research and development expenses increased in the category of salaries due to additional personnel, salary increases and related benefits, including a non-cash equity compensation charge for the nine-month period ended September 30, 2001 of approximately $790,000. In the immediate future we expect our research and development expenses to increase over the current period but decrease compared to the same period in the prior year due to the net savings from internally managing our clinical trial program, as compared to the higher cost of using an outside clinical research organization. Thereafter, we expect that such expenses will again increase as we expand clinical trials on Neotrofin(TM) and other drug candidates, as well as the other research activities at our subsidiaries. General and administrative expenses for the nine-month period ended September 30, 2001 increased by approximately $1,890,000 or 55.3% from the same period in 2000 due primarily to increases in salaries and related benefit expense from increased head count, including a non-cash equity compensation charge of approximately $365,000, travel and general occupancy expenses, legal and investor relations fees, and a break-up penalty fee of approximately $405,000 related to the first debenture tranche of $10 million under the April 17, 2001 financing. We expect general and administrative expenses to increase in future periods in support of the expected increases in research and development activities, as well as sales and marketing activities, should we successfully bring one or more of our proposed products to market. Net interest income for the nine-month period ended September 30, 2001 increased by approximately $1,692,000 due primarily to the non-recurrence of non-cash interest expense during the nine-month period ended September 30, 2000. The increase includes approximately $171,000 of additional interest income during the nine-month period from higher average cash balances resulting from the investments of unused proceeds from recent equity financings. We expect our interest income to decrease in future periods due to the use of our funds in current operations, unless offset by revenues or cash from additional equity financings. LIQUIDITY AND CAPITAL RESOURCES From inception through September 30, 2001, we financed our operations primarily through sales of securities, borrowings, grants and deferred payment of salaries and other expenses from related parties. On January 2, 2001, we filed with the Securities and Exchange Commission a "shelf" registration statement permitting the sale of securities with a maximum aggregate public offering price of $50 million. At November 10, 2001, $21.0 million remained available under the registration statement. 17 On January 30, 2001, we issued to two investors 1,070,336 shares of common stock under the first reset provision contained in the adjustable warrants issued in connection with the September 29, 2000, sale of 968,524 shares of common stock for $8 million. On May 15, 2001 we also issued an additional 900,000 shares of common stock to the two investors in respect of the second and final reset provision. No consideration was received as a result of our issuing shares pursuant to the reset provisions of this financing transaction. On February 2, 2001, we sold 1,627,756 shares of common stock under the shelf registration statement to a private investor for $3.5 million in cash. On March 8, 2001, we sold 1,250,000 shares of common stock under the shelf registration statement to a private investor for $5 million in cash. The investor also received five year warrants to purchase up to 125,000 shares of common stock at the exercise price of $5.00 purchase price per share. On April 6, 2001, in a special meeting, our stockholders approved an increase in authorized common stock from 25 million to 50 million shares. In April 2001, we continued the study of our lead compound Neotrofin(TM), and began a 500 patient trial for Alzheimer's disease. In addition, in March 2001 we began two smaller trials of Neotrofin(TM) for spinal cord injury and Parkinson's disease. The three trials will be managed internally and are estimated to cost an aggregate of approximately $9.7 million over an eighteen-month period. On April 17, 2001, we entered into a financing transaction with two private investor groups which provide, among other things, for (a) the sale of approximately 1,176,472 shares of our common stock under the shelf registration statement for $6.0 million cash, (b) an option to place with the investor groups two tranches of convertible debenture notes of $10 million and $8 million within approximately 30 days and seven months, of the initial closing, respectively, at our option, and (c) five year warrants exercisable at 125% of the market price of the date of the respective closing of each of the aforementioned debenture issuances for a number of shares equal to 20% of the number of shares into which the debentures are initially convertible. We did not exercise our option for the first debenture tranche of $10 million and paid a break-up fee of $405,000. On May 17, 2001, we sold to the aforementioned two private investor groups 1,400,000 shares of our common stock under the shelf registration statement for approximately $5,950,000 in cash. On May 17, 2001, we sold under the shelf registration statement to the aforementioned two private investor groups 1,400,000 shares of our common stock for $5.95 million cash. On June 12, 2001 we entered into two common stock sales agreements with an investment banking firm acting as an underwriter to sell our common stock on a "best efforts" basis up to the maximum aggregate public offering price under both agreements combined of $33.4 million. The securities will be offered as part of a Controlled Equity Offering, or CEO(SM). Under one of the sales agreements, we may sell up to $8.4 million of our common stock "at the market" or directly into the established trading market for the common stock. Under the other sales agreement, we may sell up to $25 million of our common stock in any manner other than "at the market". Under the agreements, if we and the underwriter agree to sell common stock on certain terms, the underwriter will use its commercially reasonable efforts to sell the securities up to the amount agreed upon, but will not be required to sell any specific number or dollar amount of securities. The net proceeds from the sales will be the aggregate sales price at which the securities were sold after deduction for the underwriter's commission/discount of up to 4%. We will issue to the underwriter five year warrants to purchase shares of our common stock in an amount equal to 10% of the number of shares of common stock sold by us pursuant to the offering at an exercise price per share equal to 130% of the volume weighted average price at which such shares were issued. On June 22, 2001 we sold to our employees through the provisions of its Employee Stock Purchase Plan (the "ESPP"), 40,390 shares of our common stock for approximately $90,100. Pursuant to the ESPP, the shares were sold at a 15% discount to market on the date of purchase. On August 13, 2001, we purchased from two institutional investors previously issued Series A Preferred Stock of NeoGene for $5.5 million representing the face value of the preferred stock plus a $500,000 premium, and accrued dividends of approximately $220,000. On August 14, 2001, we sold 600,000 shares of common stock under the shelf registration statement to an institutional investor for $2,010,000. 18 In August 2001, the holder of our 7% Series C Preferred Stock converted 170 shares of the 7% Series C Preferred Stock into 482,635 shares of our common stock. In September 2001, we repurchased the remaining 30 shares of the outstanding 7% Series C Preferred Stock for $300,000 plus accrued dividends and a settlement fee of aggregating approximately $72,000. The 30 shares of 7% Series C Preferred Stock are recorded as an offset to Stockholders' Equity. At September 30, 2001, net working capital amounted to approximately $5.2 million. This amount included cash and cash equivalents of approximately $0.6 million and marketable securities and short-term investments of approximately $7.6 million. In comparison, at December 31, 2000, we had net working capital of approximately $7.2 million, which included cash and cash equivalents of approximately $6.2 million and short-term investments of approximately $5.3 million. The $2.0 million decrease in net working capital during the nine-month period ended September 30, 2001 is attributable primarily to the loss of $18.1 million, less non-cash compensation and other items of approximately $1.6 million plus changes in operating assets and liabilities of $1.1 million, the purchase of Series A Preferred Stock of NeoGene for $5.5 million and 7% Series C Preferred Stock of NeoTherapeutics for $0.3 million, other net uses of $0.4 million, offset by the sale of approximately $21.8 million of our common stock. We periodically make non-binding commitments to various universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further our research programs. As of September 30, 2001, we had committed to pay, through May 2005, approximately $1.1 million for such grants and fellowships. We are in the development stage and devote substantially all of our efforts to research and development. We incurred cumulative losses of approximately $114.3 million through September 30, 2001, and expect to incur substantial losses over the next several years. In addition to the funds derived from our public offerings and subsequent private placement equity offerings, we will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize our proposed products. Our future capital requirements and availability of capital will depend upon many factors, including continued scientific progress in research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in filing, prosecuting and enforcing patent claims, the effect of competing technological developments, the cost of manufacturing scale-up, the cost of commercialization activities, and other factors which may not be within our control. We believe that our existing capital resources, assuming that we are able to sell shares of our common stock under the "best efforts" common stock sales agreements with an underwriter with the combined maximum aggregate price of $33.4 million, will be adequate to fund our capital needs for at least twelve months. However, we also believe that we will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize our proposed products. Additionally, there can be no assurances that the underwriter or we will be successful in selling common stock under either of the sales agreements or in raising the required funds. Without additional funding, we may be required to delay, reduce the scope of, or eliminate, one or more of our research and development projects, or obtain funds through arrangements with collaborative partners or others which may require us to relinquish rights to certain technologies, product candidates or products that we would otherwise seek to develop or commercialize on our own, and which could be on terms unfavorable to us. FACTORS AFFECTING FUTURE OPERATING RESULTS Our future operating results are highly uncertain, and the following factors should be carefully reviewed in addition to the other information contained in this quarterly report on Form 10-Q: We have incurred losses in every year of our existence and expect to continue to incur significant operating losses for the next several years. We have never generated revenues from product sales and there is no assurance that revenue from product sales will ever be achieved. In addition, there is no assurance that any of our proposed products will ever be successfully developed, receive and maintain required governmental regulatory approvals, become commercially viable or achieve market acceptance. We have no experience in manufacturing, procuring products in commercial quantities or marketing, and only limited experience in negotiating, setting up or maintaining strategic relationships and conducting clinical trials or other late stage phases of the regulatory approval process, and there is no assurance that we will successfully engage in any of these activities. Our need for additional funding is expected to be substantial and will be determined by the progress and cost of the development and commercialization of our products and other activities. We believe that we will require substantial additional funds in order to complete the research and development activities currently contemplated and to commercialize our proposed products. The source, 19 availability, and terms of such funds have not been determined. Although funds may be received from the sale of equity securities or the exercise of outstanding warrants and options to acquire our common stock, there is no assurance that any such funding will occur. Factors impacting our future success include, among other things, the ability to develop products that will be safe and effective in treating neurological diseases and cancer, develop genomic related products, and obtain government approval for our proposed products. We face numerous other risks in the operation of our business, including, but not limited to, protecting our proprietary technology and trade secrets and not infringing on those of others; attaining a competitive advantage; entering into agreements with others to source, manufacture, market and sell our products; attracting and retaining key personnel in research and development, manufacturing, marketing, sales and other operational areas; managing growth, if any; and avoiding potential claims by others in such areas as product liability and environmental matters. The above risk factors are not intended to be complete. A more comprehensive list of factors that could affect our future operating results can be found in Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2000, in "Item 1. Description of Business" under the caption "Risk Factors." Failure to satisfactorily achieve any of our objectives or avoid any of the above or other risks would likely have a material adverse effect on our business and results of operations. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK QUANTITATIVE DISCLOSURES We are exposed to certain market risks associated with interest rate fluctuations on our marketable securities and borrowing arrangements. All investments in marketable securities and borrowing arrangements are entered into for purposes other than trading. We are not subject to material risks from currency rate fluctuations, nor do we utilize hedging contracts or similar instruments. Our exposure to interest rate risk arises from financial instruments entered into in the normal course of business. Certain of our financial instruments are fixed rate, short-term investments in government and corporate notes and bonds, which are available for sale (and have been marked to market in the accompanying financial statements). Changes in interest rates generally affect the fair value of these investments, however, because these financial instruments are considered "available for sale," all such changes are reflected in the financial statements in the period affected and are not deemed material to the consolidated financial statements. Our borrowings, consisting primarily of capital lease obligations, bear interest at fixed annual rates. Changes in interest rates generally affect the fair value of such debt, but do not have an impact on earnings or cash flows. Because of the relatively short-term nature of our borrowings, fluctuations in fair value are not deemed material. QUALITATIVE DISCLOSURES Our primary exposures relate to (1) interest rate risk on borrowings, (2) our ability to pay or refinance borrowings at maturity at market rates, (3) interest rate risk on the value of our investment portfolio and rate of return, and (4) the impact of interest rate movements on our ability to obtain adequate financing to fund future cash requirements. We manage interest rate risk on our investment portfolio by matching scheduled investment maturities with the estimated timing of our cash requirements. We manage interest rate risk on our outstanding borrowings by using fixed rate debt. While we cannot predict or manage our ability to refinance existing borrowings and investment portfolio, we evaluate our financial position on an ongoing basis. 21 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES In August 2001, the holder of our Series C Preferred Stock converted 170 shares of the 7% Series C Preferred Stock into 482,635 shares of our common stock. We believe the issuance was exempt from registration pursuant to section 3(a)(9) of the Securities Act of 1933, as amended. In October 2001, we issued a five year warrant to purchase 50,000 shares of our common stock at an exercise price of $3.50 per share to a clinical research organization related to a termination settlement in November 2000 of clinical studies that we previously entered into with such organization. We believe the issuance of this warrant was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 1.1 Sales Agreement dated June 11, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.1 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 1.2 Sales Agreement dated June 11, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.2 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 1.3 Amendment to Sales Agreement, dated as of October 19, 2001, by and between Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.1 to Form 8-K, as filed with the Securities and Exchange Commission on October 24, 2001, and incorporated herein by reference.) 1.4 Amendment to Sales Agreement, dated as of October 19, 2001, by and between Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.2 to Form 8-K, as filed with the Securities and Exchange Commission on October 24, 2001, and incorporated herein by reference.) 4.1 Advisory Agreement dated April 11, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 4.1 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 4.2 Amendment to the Advisory Agreement dated June 12, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 4.2 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 4.3 Certificate of Designations of the Series C Preferred Stock of the Registrant. (Filed as Exhibit 4.7 to the Registration Statement on Form S-3 as amended (No. 333-64432), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 4.4 Amendment to Advisory Agreement, dated as of October 19, 2001, by and between Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on October 24, 2001, and incorporated herein by reference.) 10.1 Stock Purchase Agreement dated as of August 14, 2001, by and between the Registrant and Summit Capital Management LLC (Filed as Exhibit 10.1 to Form 8-K, filed with the Securities and Exchange Commission on August 15, 2001, and incorporated herein by reference.) 10.2 Stock Purchase Agreement dated as of August 13, 2001, by and among the Registrant, NeoGene Technologies, Inc., Montrose Investments Ltd. and Strong River Investments, Inc. (Filed as Exhibit 10.1 to Form 8-K, filed with the Securities and Exchange Commission on August 27, 2001, and incorporated herein by reference.) 10.3 Stock Purchase and Settlement Agreement and Release, dated as of September 19, 2001, by and among Registrant, NeoGene Technologies, Inc. and Societe Generale. (Filed as Exhibit 10.1 to Form 8-K, filed with the Securities and Exchange Commission on September 24, 2001, and incorporated herein by reference.) 10.4 License Agreement dated June 29, 2001, by and between the Registrant and NDDO Research Foundation. 10.5 License Agreement dated August 28, 2001, by and between the Registrant and Johnson Matthey plc. 10.6 License Agreement dated October 24, 2001, by and between the Registrant and Bristol-Myers Squibb Company. (b) Reports on Form 8-K 1. On August 15, 2001 we filed a report on Form 8-K announcing the sale of 600,000 shares of our common stock to an institutional investor for aggregate consideration of $2,010,000 pursuant to a Registration Statement on Form S-3 (File No. 333-53108). 2. On August 27, 2001 we filed a report on Form 8-K announcing the purchase from Montrose Investments Ltd. and Strong River Investments, Inc., of all of the outstanding shares of the Series A Preferred Stock of NeoGene Technologies, Inc., a majority-owned subsidiary of NeoTherapeutics, for $5.5 million plus accrued dividends of $219,959.86. 22 3. On September 24, 2001 we filed a report on Form 8-K announcing the purchase from Societe Generale of all of the remaining outstanding shares of the 7% Series C Preferred Stock of NeoTherapeutics for $300,000 plus accrued dividends and a settlement fee of approximately $72,000. 4. On October 24, 2001 we filed a report on Form 8-K announcing that NeoTherapeutics, Inc. and Cantor Fitzgerald & Co. ("Cantor") executed amendments to the Sales Agreements previously enter into by NeoTherapeutics, Inc. and Cantor on June 12, 2001, and to the Advisory Agreement previously entered into on April 11, 2001 and amended on June 12, 2001. The amendments relate primarily to modifications of the compensation provisions of the Sales Agreements. 5. On October 30, 2001, we filed a report on Form 8-K regarding the Alzheimer's disease clinical trial of its lead drug candidate, Neotrofin(TM). 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEOTHERAPEUTICS, INC. Date: November 14, 2001 By: /s/ Samuel Gulko ------------------------------------ Samuel Gulko, Senior Vice President Finance, Chief Financial Officer, Secretary and Treasurer (Principal Accounting and Financial Officer) 24 EXHIBIT INDEX: 1.1 Sales Agreement dated June 11, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.1 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 1.2 Sales Agreement dated June 11, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.2 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 1.3 Amendment to Sales Agreement, dated as of October 19, 2001, by and between Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.1 to Form 8-K, as filed with the Securities and Exchange Commission on October 24, 2001, and incorporated herein by reference.) 1.4 Amendment to Sales Agreement, dated as of October 19, 2001, by and between Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 1.2 to Form 8-K, as filed with the Securities and Exchange Commission on October 24, 2001, and incorporated herein by reference.) 4.1 Advisory Agreement dated April 11, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 4.1 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 4.2 Amendment to the Advisory Agreement dated June 12, 2001, by and between the Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 4.2 to the Registration Statement on Form S-3 as amended (No. 333-64444), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 4.3 Certificate of Designations of the Series C Preferred Stock of the Registrant. (Filed as Exhibit 4.7 to the Registration Statement on Form S-3 as amended (No. 333-64432), as filed with the Securities and Exchange Commission on July 2, 2001, and incorporated herein by reference.) 4.4 Amendment to Advisory Agreement, dated as of October 19, 2001, by and between Registrant and Cantor Fitzgerald & Co. (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on October 24, 2001, and incorporated herein by reference.) 10.1 Stock Purchase Agreement dated as of August 14, 2001, by and between the Registrant and Summit Capital Management LLC (Filed as Exhibit 10.1 to Form 8-K, filed with the Securities and Exchange Commission on August 15, 2001, and incorporated herein by reference.) 10.2 Stock Purchase Agreement dated as of August 13, 2001, by and among the Registrant, NeoGene Technologies, Inc., Montrose Investments Ltd. and Strong River Investments, Inc. (Filed as Exhibit 10.1 to Form 8-K, filed with the Securities and Exchange Commission on August 27, 2001, and incorporated herein by reference.) 10.3 Stock Purchase and Settlement Agreement and Release, dated as of September 19, 2001, by and among Registrant, NeoGene Technologies, Inc. and Societe Generale. (Filed as Exhibit 10.1 to Form 8-K, filed with the Securities and Exchange Commission on September 24, 2001, and incorporated herein by reference.) 10.4 License Agreement dated June 29, 2001, by and between the Registrant and NDDO Research Foundation. 10.5 License Agreement dated August 28, 2001, by and between the Registrant and Johnson Matthey plc. 10.6 License Agreement dated October 24, 2001, by and between the Registrant and Bristol-Myers Squibb Company. 25 EX-10.4 3 a77225ex10-4.txt EXHIBIT 10.4 EXHIBIT 10.4 LICENSING AGREEMENT FOR EO-9 AND ANALOGS This Agreement is made by and between the undersigned: NeoTherapeutics, Inc. 157, Technology Drive Irvine, CA 92618 USA and NDDO Research Foundation Amstelveenseweg 641 1081 JD Amsterdam The Netherlands Page 1 of 8 This Agreement to License is made the 29th of June 2001 between UNDERSIGNED The "Stichting" NDDO Research Foundation, formerly "The Stichting New Drug Development Office", having its principal office at Amstelveenseweg 641, 1081 JD Amsterdam, The Netherlands, hereinafter referred to as NDDO, a foundation for the development of new anti-cancer agents, organized and existing under the laws of The Netherlands, acting in its own capacity, and legally represented by its chairman, Mr. R.J. Vles AND The Faculty of Science of the University of Amsterdam, formerly the the Faculty of Chemistry, having its residence at Kruislaan 404, 1098 SM Amsterdam, The Netherlands, legally represented in this matter by Prof. W. Hoogland, Dean of the Faculty of Science, who was granted power of representation by the University's Executive Board, hereinafter referred to as the UNIVERSITY AND New Chemical Entities Limited, hereinafter referred to as NCE, formerly ITI, having its office at Starboard, Longpark, East Portlemouth, Salcombe TQ8 8PA, England, represented by the Directors Prof. R.K. Rondel and Mr. M. Ilsley AND Dr. E.A. Oostveen, one of the inventors of the compounds covered by the patents hereinafter defined having his residence at Van Broeckhuysenstraat 25, 6721 TC Bennekom, The Netherlands, hereinafter referred to as the INVENTOR AND NeoTherapeutics Inc., having its place of business at 157 Technology Drive, Irvine, CA 92618, USA, along with its subsidiary NeoOncoRx, Inc., and hereinafter referred to as the COMPANY, CONSIDERING 1. That research undertaken in the Department of Organic Chemistry of the UNIVERSITY during the period 1982-1989 under the responsibility of Prof. Dr. W.N. Speckamp has resulted in synthesizing a series of compounds known as Indoloquinones which hereinafter the compounds and products derived from the compounds are referred to as the COMPOUNDS 2. That the antitumor activity of the COMPOUNDS has been evaluated by cancer research institutes in Europe and the USA under the auspices of NDDO, and much of this research was paid for by NDDO Page 2 of 8 3. That the COMPOUNDS are covered by the following PATENTS filed in the name of the UNIVERSITY, mentioning Prof. Dr. W.N. Speckamp and Dr. E.A. Oostveen as inventors and owned by NDDO, UNIVERSITY, NCE, and INVENTOR:
COUNTRY/TERRITORY PATENT NUMBER ----------------- ------------- Australia 615877 Denmark 171079 Europe 0302874 Japan 2120020 U.S.A. 5079257
4. That the development and exploitation of the COMPOUNDS and PATENTS are subject to agreements between NDDO, UNIVERSITY, NCE and INVENTOR dated April 9, 1998 / April 21, 1998 / April 29, 1998 / June 10, 1998, which agreement makes up Exhibit A of this Agreement. This Agreement replaced the Agreement attached to the letter of "Ekelmans Den Hollander" to the Technology Transfer Point of the University of Amsterdam, dated June 21, 1990, made by and between the UNIVERSITY, NDDO, and NCE, which replaced the agreement between the UNIVERSITY and ITI laid down in the letter of authority dated 29 July 1984/8 August 1984/20 August 1984. 5. As set out in the co-operation agreement between NDDO, UNIVERSITY, NCE and INVENTOR dated April 9, 1998 / April 21, 1998 / April 29, 1998 / June 10, 1998, NDDO and NCE are exclusively authorized to act on behalf of the UNIVERSITY and the INVENTOR in matters detailed below. In such matters NDDO will be representing all parties and NDDO will be the entity to be notified by COMPANY. ARE AGREED AS FOLLOWS 6. All information whatsoever known now and after the signing of this Agreement concerning the COMPOUNDS and their related compounds which are the subject of PATENTS detailed in the foregoing paragraph 3 shall be freely exchanged between and used by the UNIVERSITY and the NDDO and the COMPANY and not released to third parties unless prior agreement has been given in writing by NDDO to the COMPANY 7. The NDDO and NCE grants the COMPANY the right to a sole and exclusive License to sell compounds derived from the COMPOUNDS to all markets in the World, hereinafter called the MARKET 8. The COMPANY shall pay to NDDO the sum of one hundred thousand U.S. Dollars and transfer ownership of thirty thousand shares of the COMPANY for an exclusive World-wide License to market the COMPOUNDS and payment of such sum and transfer of ownership in the shares to be made on signing this agreement; the COMPANY further undertakes to pay for all subsequent costs of progressing the PATENTS and developing the COMPOUNDS for sale in the MARKET 9. The shares in the COMPANY are quoted as NASDAQ:NEOT and may not be sold until one year has elapsed from the date of signing this contract but if at one year from the date of signing this contract their value is less than $100,000 the COMPANY will pay the NDDO such Page 3 of 8 sum in cash, COMPANY stock, or other negotiable security as will bring their value up to $100,000 Page 4 of 8 10. Upon filing a New Drug Application in the U.S.A., Australia or Japan or equivalent application showing proof of efficacy and safety in a major European market (Germany, United kingdom, France, Italy, Spain) the COMPANY will pay US $200,000 to NDDO 11. Within one month of the date of approval for marketing the COMPOUND by the relevant regulatory authorities in the U.S.A., Japan, Australia or the first European country were the product obtains approval, the COMPANY will pay NDDO $600,000 12. The COMPANY shall every three months pay to NDDO a Royalty of 5 percent of the value on net sales, (being the total revenues generated by NeoTherapeutics or its subsidiaries by the sale of the compounds derived from the COMPOUNDS, minus taxes, tariffs and shipping) of the COMPOUND in the MARKET during the proceeding three months and send a copy of the computation to NDDO and to NCE; annually the COMPANY shall send a computation of the previous twelve months Sales and Royalties certified correct by its external Public Accountants. This Article survives the end of the Agreement as laid down in Article 23.2. 13. NDDO will provide the COMPANY on the date of this contract with a copy of all data on the COMPOUNDS and will make all clinical supplies and penultimate drug substances of the COMPOUNDS available to COMPANY. For the purposes set out below in Articles 14-17, NDDO, UNIVERSITY, NCE and INVENTOR are allowed to dispose such supplies and substances as well. The parties are under the obligation to reach an agreement with respect thereto, before said supplies and substances are made available to COMPANY. 14. The NDDO and NCE and the COMPANY and their respective Agents shall work together throughout the development of the COMPOUNDS and thereafter to facilitate approval by the relevant regulatory authorities in the MARKET and shall where appropriate negotiate fees to be paid to the UNIVERSITY or the NDDO or other parties when they undertake inter alia the following 14.1 experimental and clinical trials work to be undertaken during the continuing development of the compounds 14.2 application and negotiations for clinical trials certificates 14.3 preparation of international registration dossiers 14.4 negotiation of drug registrations 14.5 such other work as shall be agreed between the Parties 15. The COMPANY shall use commercially reasonable efforts in conjunction with the UNIVERSITY and NDDO to expeditiously undertake development work on the COMPOUNDS aiming to launch marketable product or products in as many Countries in the MARKET as soon as is reasonably possible, ensuring that the names of the INVENTORS are mentioned in all publications and patent applications based on their work. 16. The COMPANY shall have first right of refusal to license any new derivatives of the COMPOUNDS including, but not limited to pharmaceutical compositions, COMPOUND analogues and methods of using same independently developed by the UNIVERSITY or the NDDO. Moreover, COMPANY shall have the right to file for patents on any derivatives of the COMPOUNDS including, but not limited to pharmaceutical preparations, COMPOUND analogous and methods of using same, that are developed independently by the COMPANY. However, the COMPANY agrees to grant to the UNIVERSITY and NDDO a royalty free, paid Page 5 of 8 up in full, non-exclusive research only license on any COMPOUND related technology it independently develops and patents. Furthermore, the COMPANY shall have first right of refusal to license any new derivatives of the COMPOUNDS including, but not limited to pharmaceutical compositions, COMPOUND analogues and methods of using same jointly developed by the COMPANY and the UNIVERSITY and/or the NDDO. The COMPANY also expressly reserves the right of first refusal to prosecute patents for any new derivatives of the COMPOUNDS including, but not limited to pharmaceutical compositions, COMPOUND analogues and methods of using same independently developed by the UNIVERSITY or the NDDO should they chose not to, and to prosecute patents on any joint inventions. 17. The UNIVERSITY and the INVENTORS and the NDDO are entitled to publish the results arising from their work on the COMPOUNDS; A draft copy will be sent to the COMPANY to identify possible patentable subject matters or proprietary information. COMPANY may amend the copy or postpone publication, by means of a written notification to NDDO, UNIVERSITY and/or INVENTOR, (with a maximum of one year after the date notification) until all confidential information is deleted from the manuscript and / or until a patent application, as specified in Article 16, covering the subject matter disclosed in the submission is filed. 18. This Agreement is entered into in good faith and nothing in the foregoing implies or is intended to imply that UNIVERSITY or INVENTOR or NDDO or NCE warrant that COMPOUNDS have or will have ultimate therapeutic utility in humans or animals. If on the other hand the marketable product derived from the COMPOUNDS to be sold by COMPANY may cause any damage to humans or animals, COMPANY shall indemnify UNIVERSITY, INVENTOR, NDDO and NCE against any liability arising therefrom. 19. The COMPANY and the UNIVERSITY and the INVENTOR and NDDO and NCE shall each at all times use reasonable efforts to give credit for the work undertaken by the other Party and uphold the good reputation of the other Party 20. The COMPANY is responsible for the maintenance of the rights into the PATENTS by paying the fees due in respect thereof. For that purpose, NDDO will forward the fee notes concerned to the COMPANY. Copies of such fee notes shall be returned to NDDO by COMPANY, mentioning SETTLED ON [DATE]. Consequently, the risk of lapse of rights into the PATENTS shall be born by COMPANY subject to COMPANY having received adequate and timely pre-notification. UNIVERSITY/NDDO/NCE/INVENTOR shall grant authority to COMPANY to pursue infringement of the PATENTS, on the basis of which authority to COMPANY shall vigorously pursue infringements of the PATENTS. UNIVERSITY/NDDO/NCE/INVENTOR shall grant COMPANY the authority to file new patent applications with respect to the marketable products derived from the COMPOUNDS. UNIVERSITY/NDDO/NCE/INVENTOR shall provide COMPANY with all necessary co-operation with respect to such patent applications, submitted to the restrictions set out in Article 16. 21. The COMPANY shall, at its own expense, defend and if found guilty, accept liability for claims by third parties for infringements of patents owned by third parties and/or, for Product liability 22. COMPANY has the right to sublicense the COMPOUNDS in all MARKETS. The COMPANY retains the responsibility to ensure that sub-licensee fulfils the obligations of this Agreement. Except as provided for herein, COMPANY shall not assign any of its rights or obligations under the terms of this Agreement, nor shall it grant any sub-licenses with respect to the Page 6 of 8 COMPOUNDS without prior written approval of UNIVERSITY/NDDO/NCE/INVENTOR, such written approval will not be unreasonable withheld. NDDO agrees to respond to such requests within 30 days. However, should such assignment of rights or obligations of this Agreement, and/or sub-license thereof, be coincident to the sale of the COMPANY, or should said assignment of rights or obligations of this Agreement, and/or sub-license thereof be to a wholly owned subsidiary of the COMPANY, written approval of UNIVERSITY/NDDO/NCE/INVENTOR shall not be required. 23. Term and Termination 23.1 Unless otherwise terminated under provisions of Article 23.2, this Agreement and the license granted under Article 7 shall continue until such time as all Patents have Expired, at which time the exclusive license rights of the COMPANY set forth in Article 7 shall be deemed to be converted into a fully paid, exclusive, worldwide, irrevocable, sublicensable license of the COMPOUNDS to make, have made, use, sell, offer to sell, import and have sold products incorporating or utilizing, practice methods covered thereby, and otherwise to commercialize and exploit, the COMPOUNDS. Furthermore, in consideration for continued technical support and know how, COMPANY agrees to pay NDDO a royalty of 2.5% on net sales as defined in section 12 after the expiration of the last PATENT covered by this license. However, COMPANY's obligations under this section and section 12 of this LICENSE AGREEMENT will cease no later than the earliest of: 1) five (5) years after the last PATENT expires, or 2) the sale of any generic form of the COMPOUNDS by a third party after the last PATENT expires. 23.2 The COMPANY may terminate this Agreement, at their option and without prejudice to any of its other legal and equitable rights and remedies, by giving the UNIVERSITY/NDDO/NCE/INVENTOR notice in writing at least three (3) months in advance of the effective date of such termination. 23.3 Should the COMPANY terminate this Agreement without cause, the provisions of Articles 6, 9, 12, and 17 shall remain in force until all obligations under the aforementioned Articles have been fulfilled. 23.4 Upon termination of this Agreement, each party will within thirty (30) days return to the other all tangible Confidential Information and Property of the other party (except one copy which may be retained by legal counsel solely for evidentiary purposes in the event of a dispute), and each party will deliver to the other a copy of any documentation in its possession or control specifically relating to the Joint Inventions. 24. COMPANY, NDDO, NCE, UNIVERSITY and INVENTOR shall be excused from performance under this Agreement for any period and to the extent that it is prevented from performing any Services pursuant to this Agreement, in whole or in part, as a result of any event of force majeure, including an act of God, war, civil disturbance, court order, labour disputes, or other cause beyond its reasonable control, and such non-conformance shall not be a default hereunder or a ground for termination of this Agreement as otherwise provided herein. Page 7 of 8 25. This Agreement (including any Attachments hereto) constitutes the entire Agreement between COMPANY, NDDO, NCE, UNIVERSITY and INVENTOR and supersedes all prior oral or written agreements or understandings with respect to this Agreement. This Agreement may not be waived, amended, modified or cancelled except by a written instrument executed by one of the Parties against whom such waiver, amendment, modification or cancellation is sought to be enforced. This agreement shall be governed by and construed in accordance with the law of The Netherlands. Any disputes arising out or in connection with this agreement of the performance there of shall be submitted to the Amsterdam court, which shall have exclusive jurisdiction. Waiver by either Party or the failure by either Party to claim a breach of any provision of this Agreement or exercise any right or remedy provided by this Agreement or applicable law, shall not be deemed to constitute a waiver with respect to any subsequent breach of any provision hereof. The terms and provisions hereof shall bind and inure to the benefits of PARTIES and their respective successors and permitted assigns. UNDERSIGNED NDDO Research Foundation The University of Amsterdam /s/R. J. Vles /s/Walter Hoogland By: R.J. Vles, By: Prof. W. Hoogland Title: Chairman Title: Dean, Faculty of Science Date: July 3, 2001 Date: July 6, 2001 New Chemical Entities Limited Inventor /s/Martin Ilsley /s/ E. A. Ostveen By: Martin Ilsley By: Dr. E.A. Oostveen, Ph.D. Title: Director Title: Inventor Date: July 11, 2001 Date: July 5, 2001 Company /s/Alvin J. Glasky By: Dr. A.J. Glasky, Ph.D. Title: Chairman, Chief Executive Officer & Chief Scientific Officer Date: July 17, 2001 Page 8 of 8 EX-10.5 4 a77225ex10-5.txt EXHIBIT 10.5 EXHIBIT 10.5 JM 1899A DATED AUGUST 28, 2001 JOHNSON MATTHEY PLC AND NEOTHERAPEUTICS, INC. LICENCE JOHNSON MATTHEY PLC 2-4 COCKSPUR STREET TRAFALGAR SQUARE LONDON SW1Y 5BR JM 1899A LICENCE Date: AUGUST 28, 2001 PARTIES: 1. The LICENSOR: Johnson Matthey PLC, a company organised under the laws of England and Wales whose registered office is at 2-4 Cockspur Street, Trafalgar Square, London, SW1Y 5BQ, England, acting for itself and for its AFFILIATES including particularly Johnson Matthey, Inc 2. The LICENSEE: NeoTherapeutics, Inc., a corporation organised under the laws of the State of California, United States of America whose principal place of business is at 157 Technology Drive, Irvine, California 92618, United States of America, acting for itself and for its AFFILIATES RECITALS: (A) The LICENSOR has developed and is the beneficial owner of a substantial body of valuable technical information relating to the use of the platinum complex JM216 in the treatment of tumour cells, toxicity data and other valuable information and is the beneficial owner of the Patent Rights relating thereto as defined hereinafter (B) The LICENSEE wishes to receive and the LICENSOR is willing to grant a licence on the terms and conditions hereinafter set forth to use such information and to work under the said Patent Rights for the purposes hereinafter provided (C) The parties have executed a Secrecy Agreement dated 13th March, 2001, and the LICENSOR has provided or arranged the provision of certain of LICENSOR'S INFORMATION to LICENSEE under said Secrecy Agreement ARTICLE I DEFINITIONS In this Agreement the following terms shall have the following meanings unless the context otherwise requires: 1. AFFILIATE: a subsidiary company within the meaning of S.736 of the United Kingdom Companies Act 1985. 2. EFFECTIVE DATE: the date upon which this Agreement has been executed by representatives of LICENSOR and LICENSEE. 3. FIELD: the use of the PRODUCTS for the purpose of treating cancer in humans and the sale of the PRODUCTS for such purpose. 4. GENERIC PRODUCT: a PRODUCT marketed by a THIRD PARTY in a country comprising the TERRITORY. 5. IMPROVEMENTS: any new or useful invention, process or improvement, patentable or unpatentable, relating to or arising under the PATENT RIGHTS, conceived or first reduced to practice or demonstrated to have utility by LICENSEE, LICENSOR, or LICENSEE AND LICENSOR jointly, during the TERM. 6. JM216: the platinum complex bis(acetato)amminedichloro(cyclohexyl-amine)platinum(IV) 7. LICENSOR'S INFORMATION: information, data, research results and clinical evaluation results relating to PLATINUM COMPLEXES and in the lawful possession of LICENSOR at the EFFECTIVE DATE (as described in Article II.1). 8. LICENSOR'S ONGOING INFORMATION: information, data, research results, as well as inventions made by LICENSOR subject to the PATENT RIGHTS, all coming into the lawful possession of LICENSOR during the TERM. 9. LICENSEE'S ONGOING INFORMATION: information, data, research results, clinical evaluation results, approval trials data and results as well as all approvals obtained by LICENSEE during the TERM and relating to the PLATINUM COMPLEXES. 10. NET SALES VALUE: the invoiced sales price of the PRODUCTS in an arm's length transaction exclusively for money after deduction of normal trade 3 discounts actually granted and of any credits actually given by the LICENSEE for returned or defective goods and excluding or making proper deductions for any costs of packing, insurance, carriage and freight and Value Added Tax or other sales tax and, in the case of export orders, any import duties or similar applicable governmental levies or export insurance costs expressly subject in all cases to the same being separately charged on customer invoices. In any sale or other disposal of any PRODUCTS otherwise than in an arm's length transaction exclusively for money, the fair market price (if higher) in the relevant country of disposal shall be substituted for the Net Sales Value 11. MILESTONES : the objectives described in Article IV hereof 12. ONGOING INFORMATION: together the LICENSOR'S ONGOING INFORMATION and the LICENSEE'S ONGOING INFORMATION. 13. PATENT RIGHTS: (i) the patents and applications short particulars whereof are set out in Schedule A hereto, as well as any continuation, continuations-in-part and divisional applications, including reissues and reexamination applications and patent term extension and reexamination certificates issuing to LICENSOR; (ii) all patent applications that may hereafter be filed by or on behalf of the LICENSOR which either are based on or claim priority from any of the foregoing patents and applications or which are in respect of any IMPROVEMENTS to which LICENSOR is exclusively entitled; and (iii) all patents which may be granted pursuant to any of the foregoing patent applications. 14. PLATINUM COMPLEXES; the platinum co-ordination compounds that are the subject of the PATENT RIGHTS. 15. PRODUCTS: PLATINUM COMPLEXES formulated for administration to patients. 4 16. TERM: the term commencing on the EFFECTIVE DATE and terminating three (3) years following the expiry of the last to expire of the patents granted in the United States of America or any of the countries currently comprising the European Union which have expiration dates specified on Schedule A. The date of expiration of a patent described in this Section shall include any extension granted to LICENSOR by virtue of any continuation, continuations-in-part and divisional applications, including reissues and reexamination applications and patent term extension and reexamination certificates issuing to LICENSOR. 17. TERRITORY: Each country of the world. 18. THIRD PARTY: any person or entity other than the LICENSOR and its AFFILIATES and the LICENSEE and its AFFILIATES. ARTICLE II GRANT OF RIGHTS 1. Subject to Article II.3 below, the LICENSOR agrees to grant and hereby grants to the LICENSEE an exclusive worldwide royalty-bearing revocable right and licence under the PATENT RIGHTS, with rights to sub-license, to use the PLATINUM COMPLEXES, the LICENSOR'S INFORMATION and the LICENSOR'S ONGOING INFORMATION to make, have made, use, offer to sell, and have sold PRODUCTS for use within the FIELD. 2. The LICENSEE shall be entitled to sub-license any THIRD PARTY under the rights granted under Article II.1 hereof provided that: (i) the LICENSEE shall remain responsible for all acts and omissions of such sub-licensees as though they were by the LICENSEE; and (ii) the sub-license agreement shall be in the form to be attached to this Agreement as Exhibit 1. In particular, the LICENSEE shall be responsible to the LICENSOR for payments due in respect of sales by sub-licensees as though they were sales by the LICENSEE. The parties shall use their best endeavours to draft, negotiate and finalize the form sub-license agreement within 15 (fifteen) days of the EFFECTIVE DATE, which form sub-license agreement shall provide that upon termination of this Agreement, any sub-licensee shall attorn to and accept the LICENSOR 5 in the place of the LICENSEE such that any sub-license shall be deemed an agreement between the LICENSOR and sub-licensee. 3. For the avoidance of doubt, it is hereby declared that the LICENSEE shall have no right hereunder to manufacture the PLATINUM COMPLEXES except in the circumstances of Article VI.2, nor to use or sell them otherwise than for use within the FIELD and, without prejudice to the foregoing, the LICENSEE accepts that the licence hereby granted does not include the right to manufacture the PLATINUM COMPLEXES other than in the circumstances set forth in Article VI.2, or in accordance with the supply agreement between the LICENSOR and LICENSEE. ARTICLE III ONGOING RESEARCH AND DEVELOPMENT 1. The LICENSEE shall diligently perform research and development on the use of JM 216 and other PLATINUM COMPLEXES within the FIELD and on the formulation of PRODUCTS. The LICENSEE shall exercise in the performance of such research and development technical skill and competence of a high calibre. 2. Throughout the TERM of this Agreement, the LICENSOR shall promptly disclose to the LICENSEE all LICENSOR'S ONGOING INFORMATION developed or acquired by LICENSOR except insofar as such disclosure would disclose information derived from and subject to confidentiality obligations in favour of a THIRD PARTY. Solely for the purposes set forth in Article VI.2, LICENSEE shall also promptly disclose to LICENSOR any LICENSEE ONGOING INFORMATION necessary for LICENSOR to perform its obligations set forth in Article VI.2. 6 ARTICLE IV MILESTONES 1. The LICENSEE shall use its best efforts to test, evaluate and develop PRODUCTS so as to meet the objectives detailed hereunder within ninety (90) days of the target date specified for each such objective:
Objective Target Date - --------- ----------- 1 Submission of NDA in the United States of America (hereinafter called `a First MILESTONE') 1st January 2004 2 Receipt of US FDA approval of NDA (hereinafter called `a Second MILESTONE') 1st January 2005 3 Approval in the first European Union state of a new drug application (hereinafter called `a Third MILESTONE') 1st January 2006 4 Approval by US FDA of JM216 for the first indication other than the indication approved in Objective 2. (hereinafter called `a Fourth MILESTONE') 1st January 2007 5 Approval in the first European Union state of JM216 for the first indication other than the indication approved in Objective 3. (hereinafter called a `Fifth MILESTONE') 1st January 2008
ARTICLE V PAYMENT 1. Upon the EFFECTIVE DATE the LICENSEE shall pay to the LICENSOR the initial sum of US$100,000 (one hundred thousand); 2. Upon the earlier of: (i) execution by LICENSOR of the supply agreement described in Article V; or (ii) January 31, 2002, the LICENSEE shall pay to the LICENSOR the sum of US$150,000 (one hundred and fifty thousand). 3. Within 30 (thirty) days of the date of the attainment of each MILESTONE the LICENSEE shall pay to the LICENSOR the following sums: (i) the First MILESTONE: US$750,000 (seven hundred and fifty thousand) 7 (ii) the Second MILESTONE: US$3,000,000 (three million) (iii) the Third MILESTONE: US$1,000,000 (one million) (iv) the Fourth MILESTONE: US$1,000,000 (one million) (v) the Fifth MILESTONE: US$1,000,000 (one million) 4. The LICENSEE shall during the TERM of this Agreement pay to the LICENSOR a royalty calculated at the rate of 8.5% of the NET SALES VALUE of all PRODUCTS sold or otherwise supplied for use whether within the FIELD or outside the FIELD for money or money's worth by LICENSEE or any AFFILIATE or sublicensee thereof; provided, however, that in any country in the TERRITORY where a GENERIC PRODUCT is sold in competition with the PRODUCT, the royalty payable to LICENSOR with respect to NET SALES of such PRODUCTS in such country shall be reduced to 0%, commencing with the calendar quarter during which any such GENERIC PRODUCT first becomes available in competition with the PRODUCT in such country. 5. Payments due under Article V.4 shall be made within 30 days of the end of each calendar quarter in respect of royalties accruing on PRODUCTS invoiced in that calendar quarter. 6. All sums due to be paid to the LICENSOR under this Agreement: 5.1 are exclusive of any Value Added, Sales, or any other tax which shall be payable in addition; 5.2 shall be made in United States dollars to the credit of one or more bank accounts to be designated from time to time in writing by the LICENSOR. Conversion into United States dollars shall be calculated where appropriate; 5.3 in the case of each sale in a currency other than United States dollars, the royalty shall be calculated in United States dollars at the New York foreign exchange rate quoted in The Wall Street Journal on the date that payment is due; provided always that where any payment is made 8 after the date provided therefor herein conversion shall be at the foreign exchange rate on the date of payment if this is more favourable to the LICENSOR; 5.4 shall be made in full without deduction of taxes charges and other duties that may be imposed except in so far as any such deduction may be credited in full by the LICENSOR against the LICENSOR's own tax liabilities. The parties agree to co-operate in all respects necessary to take advantage of such double taxation agreements as may be available 7. The LICENSEE agrees during the TERM and for a period of two (2) years thereafter to keep true and accurate records and books of account containing all data necessary for the determination of royalties payable under this Agreement, including records and books of account relating to sales of PRODUCTS by sub-licensees, which records and books of account shall upon reasonable notice by LICENSOR be open at all reasonable times during business hours for inspection by an independent accountant appointed by LICENSOR for the purpose of verifying the accuracy of the LICENSEE's reports hereunder. Such accountant shall be entitled to take copies solely of LICENSEE's records pertaining to such reports at LICENSOR's expense. The LICENSEE shall ensure that its sub-licensees (if any) also keep true and accurate records and books of account containing all data necessary for the determination of royalties payable in respect of their activities and shall ensure that such records and books of account shall upon reasonable notice by the LICENSOR be open at all reasonable times during business hours for inspection by such independent accountant for the purpose of verifying the accuracy of the LICENSEE's reports hereunder. 8. The LICENSEE shall submit to the LICENSOR within 30 days of the end of each calendar quarter a statement setting forth with respect to the operations of the LICENSEE hereunder, as well as with regard to each sub-licensee during that period, the quantity of PRODUCTS made and sold and the NET SALES VALUE of all PRODUCTS sold together with payments due. 9 9. The accountant selected to inspect the LICENSEE'S books and records pursuant to Article V.7 shall agree in writing to maintain in confidence all financial and other information received with respect to the LICENSEE's operations pursuant to the foregoing Article V.7. ARTICLE VI SUPPLY OF PLATINUM COMPLEXES 1. The LICENSOR shall supply to the LICENSEE, LICENSEE's reasonable requirements of the PLATINUM COMPLEXES used in the manufacture of the PRODUCTS at reasonable commercial prices under the terms of one or more separate supply agreements the terms of which are to be agreed. 2. Within 15 (fifteen) days of the EFFECTIVE DATE, LICENSOR shall deliver a proposal for the supply of 200 grams of the PLATINUM COMPLEXES as follows: (i) 80 grams to be delivered on or before September 15, 2001, and 120 grams to be delivered on or before October 31, 2001. The PLATINUM COMPLEXES supplied pursuant to this Section shall be manufactured by the LICENSOR in accordance with its Standard Operation Procedures, but not be certified as being manufactured in accordance with Good Manufacturing Practices. The obligation of the LICENSOR pursuant to this Section shall be independent of the existence of the supply agreement described in Article VI.1. 3. LICENSOR understands the requirement of LICENSEE to have security of supply. In the event that either: (i) the parties have not entered into a definitive supply agreement as described in Article VI.1 by January 31, 2002; or (ii) the LICENSOR is unable or unwilling to supply the LICENSEE with its reasonable requirements of the PLATINUM COMPLEXES at reasonable prices, the parties agree that the LICENSEE shall have the right and license to manufacture or have manufactured the PLATINUM COMPLEXES itself or through any THIRD PARTY, subject to the terms and conditions of this Agreement. 10 ARTICLE VII PATENTS 1. The LICENSOR shall at its own cost diligently prosecute to grant all subsisting patent applications within the PATENT RIGHTS so as to secure the broadest monopoly reasonably obtainable consistent with avoiding serious prejudice to the validity of such granted patents and shall maintain all patents within the PATENT RIGHTS in force for the full terms thereof. In the event that LICENSOR elects to abandon the prosecution or maintenance of any such PATENT RIGHTS in any country in the Territory, LICENSOR shall give LICENSEE notice thereof at least 60 days prior to the date on which LICENSEE is required by law to make a filing in order to preserve rights to patent protection in such country, and LICENSEE shall have the right to do so, at its own expense. In the event that LICENSOR elects to abandon the prosecution or maintenance in any country in the Territory any of its PATENT RIGHTS and LICENSEE elects to assume such prosecution and maintenance, then LICENSOR shall assign its rights it may have therein in such country to LICENSEE. 2. Neither party hereto shall publish any matter forming part of the ONGOING INFORMATION that might prejudice the validity of any patent that might subsequently be granted on it. Each party shall notify the other whether it intends to seek any relevant protection for any part of its respective ONGOING INFORMATION. If it does not wish to do so and if the other party within three (3) calendar months notifies the first party that it would like to seek patent or other protection then this obligation shall continue for such time as may be reasonably required to prepare and file an application for a patent or other protection after which period it shall lapse. 3. IMPROVEMENTS that are made by an employee or agent of LICENSEE, solely or jointly, other than with an employee or agent of LICENSOR, shall be owned by LICENSEE. IMPROVEMENTS that are made jointly by employees or agents of LICENSOR and LICENSEE shall be jointly owned by LICENSOR and LICENSEE and treated as joint inventions under the laws applicable to joint inventions. In those countries in which the LICENSEE deems it commercially reasonable, the LICENSEE shall process and pay for patent applications for any jointly owned IMPROVEMENTS (including the 11 cost of filing and prosecuting applications as well as maintaining granted patents) which are to be utilised in the FIELD. In prosecuting and filing for protection, the LICENSEE shall have the right to make any decisions which it deems necessary to carry out such filing and prosecution. While any patent issued shall be jointly owned, the LICENSEE shall have the sole and exclusive right with regard to utilisation of the jointly owned patent in the FIELD to: (i) license such jointly owned IMPROVEMENTS to a THIRD PARTY; (ii) to enforce such patents against any THIRD PARTY; and (iii) make, have made, use, sell, and have sold all jointly owned Improvements. In the event the term of a jointly owned patent covering an IMPROVEMENT extends beyond the TERM, the LICENSOR and LICENSEE agree to undertake best endeavours to reach an agreement on the terms under which LICENSEE will retain the sole and exclusive rights as described in the prior sentence. 4. Unless otherwise agreed, the costs of filing and prosecuting any application for patent and maintaining such granted patents shall rest with the party making the application. 5. If, with respect to a given country, the LICENSEE becomes aware of substantial infringement (greater than thirty percent (30%) of the LICENSEE'S NET SALES VALUE of PRODUCTS in such country) by a THIRD PARTY of the PATENT RIGHTS in such country the LICENSEE will promptly notify the LICENSOR and the parties will confer and attempt to agree on what action should be taken. Should the LICENSOR and the LICENSEE agree that suit should be brought in any such country, the LICENSEE shall have the right to control, bear the cost of, and retain any recovery from any such suit. Should the LICENSEE not wish to bring suit, the LICENSOR shall have the option to do so, in which case the LICENSOR shall control, bear the cost of, and retain any recovery from any such suit and the LICENSEE shall reasonably co-operate in the effort. Should the LICENSEE provide the LICENSOR with reasonable evidence of substantial infringement by a THIRD PARTY of the PATENT RIGHTS in any country and the parties are unsuccessful in abating the infringement within one hundred and twenty (120) days after the LICENSOR has promptly notified the 12 infringer of the infringement, and should the LICENSOR have failed to file suit for infringement at the end of such one hundred and twenty (120) day period, the LICENSEE shall be entitled to reduce the amount of royalty due in such country in accordance with Article V.4 by a percentage equal to the percentage of such substantial infringement, but in no event by more than fifty per cent (50%). Said reduced royalty shall continue to be the prevailing royalty rate on NET SALES VALUE of PRODUCTS in such country until said substantial infringement ceases and, thereafter, the royalty shall revert to the full royalty defined herein. 6. The LICENSOR represents that it is not aware that any PRODUCTS or PLATINUM COMPLEXES infringes upon or falls within any THIRD PARTY patent rights. In the event that a THIRD PARTY accuses or brings suit against either party alleging patent infringement, the parties shall meet and agree on the response to the THIRD PARTY and the conduct of and costs arising from any suit. 7. In the event that any PLATINUM COMPLEXES infringe or fall within any THIRD PARTY patent rights, the LICENSOR shall at its own expense use its best endeavours either to modify the PLATINUM COMPLEXES to be non-infringing or to obtain at its own expense for the LICENSEE a licence to continue using PLATINUM COMPLEXES, provided that in the event that the parties reasonably agree that it is not possible either to modify the PLATINUM COMPLEXES to be non-infringing or to obtain for the LICENSEE a licence to continue using the PLATINUM COMPLEXES then the LICENSEE may terminate this Agreement and all licences granted hereunder forthwith on written notice, and the parties shall co-operate with respect to an orderly termination of the same. Termination under this sub-clause shall be without prejudice to the rights of either party accrued at the date of termination. 8. If at any time during the TERM the LICENSEE directly or indirectly opposes or assists any THIRD PARTY to oppose the grant of letters patent on any patent application within the PATENT RIGHTS or disputes or directly or indirectly assists any THIRD PARTY to dispute the validity of any patent within the PATENT RIGHTS or any of the claims thereof the LICENSOR 13 shall be entitled to terminate all or any of the licences granted hereunder forthwith by notice thereof to the LICENSEE. ARTICLE VIII CONFIDENTIALITY 1. Any information communicated by one party to the other pursuant to this Agreement or prior to and in contemplation of it, whether technical or commercial, and which is identified on the face of a document as confidential, or if an oral or visual communication is confirmed as confidential within 30 days, or would be reasonably be assumed as confidential in the circumstances, shall be treated by the party receiving the information as confidential. The receiving party shall afford such confidential information the same protection as it affords its own confidential information, but no less than reasonable protection. The receiving party shall respect the other's proprietary rights therein, shall use the same exclusively for the purposes of this Agreement, and shall disclose the same only to those of its contractors and sub-licensees (if any) pursuant to this Agreement to whom and to the extent that such disclosure is reasonably necessary for the purpose of this Agreement and who shall enter into obligations of confidentiality direct with the other in similar terms to this Article. 2. The foregoing obligations of Article VIII.1 above shall not apply to information which: 2.1 prior to receipt thereof from one party was in the possession of the other and at its free disposal; 2.2 is subsequently disclosed to the recipient party without any obligations of confidence by a third party who has not derived it directly or indirectly from the other; 2.3 is or becomes generally available to the public through no act or default of the recipient party or its agents or employees; 2.4 is required to be disclosed by order of a court or administrative authority but only after the owner of the information has been 14 informed by the party subject to the order, if such informing is possible in the circumstances. 3. The restrictions imposed in this Article shall not apply to disclosure of information necessary for the obtaining of patents, nor shall they restrict disclosure or any other action which is necessary for obtaining or maintaining registration or approval of the Food and Drug Administration or any other regulatory agency of the United States or any other country for the evaluation and sale of PRODUCTS. ARTICLE IX PERFORMANCE 1. During the continuance of this Agreement the LICENSEE shall: 1.1 use its best endeavours to obtain appropriate regulatory approvals for PRODUCTS in the United States of America or any of the countries currently comprising the European Union and to promote the distribution and sale of PRODUCTS in the FIELD in the such countries as widely as its resources reasonably permit and will make available all necessary selling facilities to meet in full all demands for PRODUCTS for use in the FIELD throughout such countries; 1.2 ensure that all literature prepared by the LICENSEE and relating to PRODUCTS bears an acknowledgement to the effect that they are subject to a licence from the LICENSOR, and attach to all PRODUCTS a label quoting relevant patent numbers and stating that such PRODUCTS are made under licence from the LICENSOR; 1.3 not act as agent of the LICENSOR and specifically not give any indication that it is acting otherwise than as principal and in advertising or selling PRODUCTS not make any representation or give any warranty on behalf of the LICENSOR; 1.4 advise LICENSOR immediately of all approvals granted and assist LICENSOR in all reasonable ways to obtain any form of patent term extension for medicines. 15 ARTICLE X LIABILITY 1. The LICENSEE shall defend, indemnify (and keep indemnified) and hold the LICENSOR harmless from and against all claims, liabilities damages costs and expenses (including legal costs) which may be brought or made against or incurred by the LICENSOR arising from the use or sale of the PRODUCTS. LICENSOR acknowledges that this indemnity does not include those items for which LICENSOR is indemnifying LICENSEE below. The LICENSOR shall as soon as reasonably practicable notify the LICENSEE of any such claims and shall give to the LICENSEE all reasonable assistance that the LICENSEE may request in connection therewith. 2. The LICENSOR shall defend, indemnify (and keep indemnified) and hold LICENSEE harmless from and against any claims, liabilities, damages, costs and expenses (including legal costs) arising out of or otherwise relating to any claims: (a) alleging that the PLATINUM COMPLEXES and/or the LICENSOR INFORMATION or LICENSOR'S ONGOING INFORMATION infringes upon the intellectual property rights of any THIRD PARTY, and (b) arising out of defects present in any PLATINUM COMPLEXES supplied to the LICENSEE by the LICENSOR pursuant to Article VI herein, up to a maximum cap of $5 million. The LICENSEE shall as soon as reasonably practicable notify the LICENSOR of any such claims and shall give to the LICENSOR all reasonable assistance that the LICENSOR may request in connection therewith. ARTICLE XI TERM AND TERMINATION 1. This Agreement shall commence on the EFFECTIVE DATE and shall continue in force in each country of the TERRITORY for the TERM. 2. The LICENSOR may terminate this Agreement by written notice to the LICENSEE in the event of failure by the LICENSEE to make any of the payments specified in Article V hereof on the due date or any reasonable and mutually agreed upon extension of any such date. 3. The LICENSOR shall have the right to terminate this Agreement upon forty-five (45) days written notice to LICENSEE in the event of failure by the 16 LICENSEE to attain the FIRST, SECOND OR THIRD MILESTONES in Article IV hereof within ninety (90) days of the target date specified for such MILESTONE or any reasonable and mutually agreed upon extension of such MILESTONE target date. LICENSOR agrees that it shall grant all reasonable requests by LICENSEE for extensions of such target dates and LICENSOR further agrees that it shall not exercise its right to terminate except where it has good faith reason to believe that LICENSEE will be unable to comply with any requested extended dates. 4. LICENSEE shall have the right to terminate this Agreement at any time by giving written notice to LICENSOR, which shall be effective 60 (sixty) days from the date such notice is given. 5. In the event of a breach of this Agreement by either party, and if remedial action is possible the party fails to remedy such breach within a period of 45 (forty five) days after written notice thereof from the other party, the other party shall have the right forthwith to terminate this Agreement by giving written notice of termination to the party in breach, except where the cause of such default is a reason of force majeure under Article XII hereof, in which event the other party shall have no such right of termination under this Article XI.5 6. Either party shall have the right forthwith to terminate this Agreement by giving written notice of termination to the other if the other shall have a receiver or manager appointed of its undertaking or assets or shall have an administration order made against it or shall go into liquidation whether voluntary or otherwise (other than for the purposes of and followed by an amalgamation or reconstruction) or shall enter into any composition or arrangement with its creditors or if it shall cease to carry on business. 7. Termination under this Article shall be without prejudice to the rights of the either party existing at the date of termination. 8. Termination of this Agreement for any reason shall not bring to an end: 8.1 the secrecy obligations on the parties hereto, which shall continue for a further period of ten years after termination; 17 8.2 the LICENSEE's obligations to pay royalties or other sums which have accrued due or which will become due in respect of sales under Article XI.9 hereof; 8.3 Upon any termination of this Agreement, all sublicenses granted by the LICENSEE utilising the form sub-license agreement attached as Exhibit 1 to this Agreement shall be automatically assigned to the LICENSOR which shall thereafter receive all benefits and have all obligations under the sublicenses as in the place and stead of the LICENSEE. All other sub-licenses shall terminate simultaneously with this Agreement. 9. On termination of this Agreement for any reason the LICENSEE shall continue to have the right for a period of six months from the date of termination to complete deliveries on contracts in force at that date and to dispose of PRODUCTS already manufactured subject to payment to the LICENSOR of royalties thereon in accordance with Article V hereof. 10. Upon termination by LICENSOR due to LICENSEE'S breach, the LICENSEE shall pass to the LICENSOR all information and data in the LICENSEE'S possession concerning the PRODUCTS and the LICENSEE'S ONGOING INFORMATION. All regulatory approvals made or acquired by the LICENSEE with respect to the PRODUCTS shall become the sole property of the LICENSOR, and the LICENSOR shall have an exclusive royalty-free licence without limit of time, with the right to grant sub-licences thereunder, to use all LICENSEE's ONGOING INFORMATION and to work under all intellectual property rights in respect thereof owned by the LICENSEE or any successor in title of the LICENSEE. 11. After termination of this Agreement by LICENSOR due to LICENSEE'S breach, and in the event that the LICENSOR shall grant a licence to any THIRD PARTY to use PLATINUM COMPLEXES in the manufacture of PRODUCTS for use within the FIELD and in the event that such licence includes the right to use LICENSEE'S ONGOING INFORMATION, then LICENSOR shall pay to the LICENSEE a proportion of any royalties obtained from such THIRD PARTY, such proportion to be agreed between the parties 18 hereto, taking into account the proportion of the value of the licensed LICENSEE'S ONGOING INFORMATION to the value of the licensed rights as a whole. 12. Following the expiration of the TERM of this Agreement, LICENSEE shall have the royalty-free, non-exclusive, perpetual right and license to continue to use the PLATINUM COMPLEXES to make, have made, use, sell, and have sold PRODUCTS in all countries in the TERRITORY. ARTICLE XII FORCE MAJEURE If the performance of any part of this Agreement by either party is prevented restricted, interfered with or delayed by reason of any cause beyond the reasonable control of the party liable to perform, unless conclusive evidence to the contrary is provided, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party shall use its reasonable best efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed. In the event that the event of Force Majeure continues uninterrupted for a period of six months, the party not directly affected by the event may terminate this Agreement upon one month's written notice, subject to the termination being ineffective if the even of Force Majeure ends during that notice period. ARTICLE XIII PERSONNEL 1. The LICENSOR agrees that it will not, nor will its AFFILIATES, for the term of this Agreement and for a period of six months after termination for whatsoever cause employ or appoint as its partner, consultant or agent any person who has been within a period of one year from the date of such intended employment or appointment employed by the LICENSEE in research or other technical or commercial work associated with the purposes of this Agreement. 2. The LICENSEE agrees that it will not, nor will its AFFILIATES, for the term of this Agreement and for a period of six months after termination for whatsoever cause employ or appoint as its partner, consultant or agent any 19 person who has been within a period of one year from the date of such intended employment or appointment employed by the LICENSOR in research or other technical or commercial work associated with the purposes of this Agreement. ARTICLE XIV GENERAL 1. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal successors but shall not otherwise be assignable by either party without the written consent of the other party, other than to an assignee of such party of all or substantially all of such party's business. 2. No variation or amendment of this Agreement shall bind either party unless made in writing and agreed to in writing by duly authorised officers of both parties. 3. If any provision of this Agreement is agreed by the parties to be illegal void or unenforceable under any law that is applicable hereto or if any court or administrative authority of competent jurisdiction in a final decision so determines this Agreement shall continue in force save that such provision shall be deemed to be excised herefrom with effect from the date of such agreement or decision or such earlier date as the parties may agree. In such event, the parties shall endeavour to substitute the excised provision by another provision that achieves the intentions of the parties at the date hereof. 4. The headings in this Agreement are for convenience only and are not intended to have any legal effect. 5. A failure by either party hereto to exercise or enforce any rights conferred upon it by this Agreement shall not be deemed to be a waiver of any such rights or operate so as to bar the exercise or enforcement thereof at any subsequent time or times. 6. This Agreement shall not give any rights of enforcement or otherwise to any THIRD PARTY. 20 7. Each of the parties acknowledges and agrees that in entering into this Agreement, and the documents referred to in it, it does not rely on, and shall have no remedy in respect of, any statement, representation, warranty or understanding (whether negligently or innocently made) of any person (whether party to this Agreement or not) other than as expressly set out in this Agreement as a warranty or representation. The only remedy available to it for breach of the such warranties or representations shall be for breach of contract under the terms of this Agreement. Nothing in this clause shall, however, operate to limit or exclude any liability for fraud. ARTICLE XV NOTICES 1. Any notice required to be given hereunder by either party to the other shall be in writing and shall be served by sending the same by registered or recorded delivery post or by telefax to the address of the other party as given herein or to such other address as that party may have previously notified to the party giving notice as its address for such service. Such notice shall be deemed to be received, if given by post, three days after mailing, and if given by telefax, on the day of transmission. 2. The parties' address for service are as follows: For the LICENSOR Johnson Matthey PLC 2-4 Cockspur Street Trafalgar Square London SW1Y 5BQ United Kingdom attention: Company Secretary Telefax: For the LICENSEE NeoTherapeutics Inc PO Box 57052 Irvine California 92619 -- 7052 U.S.A. attention: President Telefax: 949-788-6706: 21 ARTICLE XVI INTEREST Any payment required to be made by the LICENSEE under the provisions of this Agreement shall bear interest as well after as before judgment from the date the payment becomes due until the date of actual payment at a rate equal to 3% over the base rate from time to time of Lloyds Bank PLC ARTICLE XVII GOVERNING LAW AND DISPUTES 1. The construction validity and performance of this Agreement shall be governed in all respects by English Law. 2. Subject to Article XVII 3, all disputes arising in any way out of or affecting this Agreement shall be referred to arbitration under the rules of conciliation and arbitration of the International Chamber of Commerce whose decision shall be final. The place of arbitration shall be California if the LICENSOR is the plaintiff and London if the LICENSEE is the Plaintiff. 3. Notwithstanding Article XVII 2, either party may seek interlocutory relief in respect of any dispute arising in any way out of or affecting this Agreement from the English courts and the parties agree that such courts shall have non-exclusive jurisdiction in this regard. 22 SCHEDULE A Patent Rights 1. Case MBUS 1044
Country Application No. Patent No. Expiration ------- --------------- ----------- ---------- Austria EP891300787 0328274 26Jan09 Belgium " " 26Jan09 France " " 26Jan09 Germany " " 26Jan09 Great Britain " " 26Jan09 Greece " " 26Jan09 Italy " " 26Jan09 Luxembourg " " 26Jan09 Netherlands " " 26Jan09 Spain " " 26Jan09 Sweden " " 26Jan09 Switzerland " " 26Jan09 Australia 28971/89 618310 31Jan09 Brazil 1100963-2 1100963-2 14May17 Canada 589796 1340286 22Dec15 Denmark 0491/89 -- 1Feb09 Finland 89/0512 91260 1Feb09 Hungary 52289 205767 3Feb09 Hungary P/P00163 210872 9Dec08 Ireland 31989 65503 31Jan 06(can be extended to 31Jan09) Israel 89119 89119 29Jan09 Japan 01/24751 2781403 1Feb09 S. Korea 89/1069 147270 15May13 Mexico 9203596 181357 10Dec08 New Zealand 227839 227839 1Feb09 Norway 89/0426 177569 1Feb09 Portugal 89608 89608 2Feb09
23
Country Application No. Patent No. Expiration ------- --------------- ----------- ---------- Romania C-20256 -- 2Feb08 South Africa 89/0831 89/0831 1Feb09 Taiwan 78/100752 51931 20Oct06 USA 07/602931 5072011 9Dec08 USA 07/723971 5244919 14Sep10
2. Case MBUS 1192
Country Application No. Patent No. Expiration ------- --------------- ----------- ---------- Austria EP 95302629.1 0 679 656 19Apr15 Belgium EP 95302629.1 0 679 656 19Apr15 Denmark EP 95302629.1 0 679 656 19Apr15 France EP 95302629.1 0 679 656 19Apr15 Germany EP 95302629.1 0 679 656 19Apr15 Greece EP 95302629.1 0 679 656 19Apr15 GB EP 95302629.1 0 679 656 19Apr15 Holland EP 95302629.1 0 679 656 19Apr15 Ireland EP 95302629.1 0 679 656 19Apr15 Italy EP 95302629.1 0 679 656 19Apr15 Portugal EP 95302629.1 0 679 656 19Apr15 Spain EP 95302629.1 0 679 656 19Apr15 Sweden EP 95302629.1 0 679 656 19Apr15 Switzerland EP 95302629.1 0 679 656 19Apr15 Australia 17661/95 692521 23Apr15 Canada 2147567 -- 20Apr15 Japan 7-100870 -- 24Apr15 USA 08/428444 5519155 24Apr15
24 IN WITNESS whereof the parties have caused this Agreement to be executed the day and year first above written SIGNED by: /s/ Barry Murrer ------------------------- ------ For and on behalf of ) JOHNSON MATTHEY PUBLIC ) LIMITED COMPANY ) SIGNED by: /s/Rajesh C. Shrotriya -------------------------------- Rajesh C. Shrotriya, M.D., President and Chief Operating Officer For and on behalf of ) NEOTHERAPEUTICS INC. ) 25 SCHEDULE A Patent Rights 1. Case MBUS 1044 Country Application No. Patent No. Expiration ------- --------------- ---------- ---------- Austria EP891300787 0328274 26Jan09 Belgium " " 26Jan09 France " " 26Jan09 Germany " " 26Jan09 Great Britain " " 26Jan09 Greece " " 26Jan09 Italy " " 26Jan09 Luxembourg " " 26Jan09 Netherlands " " 26Jan09 Spain " " 26Jan09 Sweden " " 26Jan09 Switzerland " " 26Jan09 Australia 28971/89 618310 31Jan09 Brazil 1100963-2 1100963-2 2Feb08 Canada 589796 1340286 22Dec15 Denmark 0491/89 - 1Feb09 Finland 89/0512 91260 1Feb09 Hungary 52289 205767 3Feb09 Hungary P/P00163 210872 9Dec08 Ireland 31989 65503 31Jan 06 (can be extended to 31Jan09) Israel 89119 89119 29Jan09 Japan 01/24751 2781403 1Feb09 S. Korea 89/1069 147270 15May13 Mexico 9203596 181357 10Dec08 New Zealand 227839 227839 1Feb09 Norway 89/0426 177569 1Feb09 Portugal 89608 89608 2Feb09
Country Application No. Patent No. Expiration ------- --------------- ----------- ---------- Romania C-20256 - 2Feb08 South Africa 89/0831 89/0831 1Feb09 Taiwan 78/100752 51931 20Oct06 USA 07/602931 5072011 9Dec08 USA 07/723971 5244919 14Sep10 2. Case MBUS 1192 Country Application No. Patent No. Expiration ------- --------------- ----------- ---------- Europe 95302629 0 679 656 19Apr15 Australia 17661/95 692521 23Apr15 Canada 2147567 - 20Apr15 Japan 7-100870 - 24Apr15 USA 08/428444 5519155 24Apr15
EX-10.6 5 a77225ex10-6.txt EXHIBIT 10.6 Exhibit 10.6 LICENSE AGREEMENT BETWEEN BRISTOL-MYERS SQUIBB COMPANY AND NEOTHERAPEUTICS INC. DATED AS OF OCTOBER 24, 2001 LICENSE AGREEMENT THIS LICENSE AGREEMENT (this "Agreement"), dated as of October 24, 2001 is entered into by and between Bristol-Myers Squibb Company, a corporation organized and existing under the laws of the State of Delaware, having offices at P.O. Box 206 and Province Line Road, Princeton, New Jersey 08543-4000, for and on behalf of itself and its Affiliates ("BMS"), and NeoTherapeutics Inc., a corporation organized and existing under the laws of Delaware, having offices at 157 Technology Drive, Irvine, California 92618 ("NeoTherapeutics"). PRELIMINARY STATEMENTS A. BMS has developed, is the owner of and has all right, title and interest in and to certain valuable technology, including know-how and patents or patent applications, for the treatment of diseases and conditions in humans. B. NeoTherapeutics is interested in developing and commercializing such technology and desires to obtain a license from BMS to manufacture, market and sell products using such technology in the Territory. C. BMS is willing to grant such license to NeoTherapeutics on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing Preliminary Statements and the mutual covenants and agreements of the Parties contained in this Agreement, the Parties agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms will have those meanings set forth in this Section 1 unless the context dictates otherwise. 1.1 "Affiliate", with respect to any Party, shall mean any Person controlling, controlled by, or under common control with, such Party. For these purposes, "control" shall refer to (a) the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise or (b) the ownership, directly or indirectly, of at least 50% of the voting securities or other ownership interest of a Person. 1.2 "Effective Date" shall have the meaning assigned thereto in Section 5.1. 1.3 "FDA" shall mean the U.S. Food and Drug Administration, or the successor thereto. 1.4 "First Commercial Sale" shall mean, with respect to any Product, the first sale for use or consumption by the general public of such Product in a country in the Territory after all required marketing and pricing approvals have been granted, or otherwise permitted, by the 1 governing health authority of such country. "First Commercial Sale" shall not include the sale of any Product for use in clinical trials or for compassionate use. 1.5 "Generic Product" shall mean, on a country-by-country basis, a product marketed by an unlicensed Third Party or Parties in such country in competition with any Product. 1.6 "Improvement" shall mean any new or useful invention, process or improvement, patentable or unpatentable, relating to or arising from the Licensed Technology, conceived or first reduced to practice or demonstrated to have utility by NeoTherapeutics, its Affiliates or sublicensees, either alone, jointly with a Third Party or jointly with BMS, during the term of this Agreement, including, without limitation, any Products developed and marketed by NeoTherapeutics, its Affiliates or sublicensees. 1.7 "IND" shall mean an investigational new drug application filed with the FDA. 1.8 "Know-How" shall mean any and all technical data, information, material and other know-how, if any, currently owned by BMS that is necessary or useful to practice the Patents. 1.9 "Licensed Technology" shall mean the Patents set forth in Exhibit A, the Material and, with respect to each Patent, the Know-How that is necessary or useful to practice such Patent, collectively. When no Patent(s) is specified, "Licensed Technology" shall mean all of the Patents, Material and Know-How, collectively. 1.10 "Major Market" shall mean each of France, Germany, Japan, Italy, Spain, the United Kingdom and the United States. 1.11 "Material" shall mean the culture from the American Type Culture Collection identified by accession number ATCC 39417. 1.12 "Net Sales" shall mean, with respect to any Product, the gross amount invoiced for such Product by NeoTherapeutics, its Affiliates, and sublicensees to Third Parties, less deductions for: (i) trade, quantity and/or cash discounts, allowances and rebates (including, without limitation, promotional or similar allowances) actually allowed or given; (ii) freight, postage, shipping, insurance and transportation expenses and similar charges (in each instance, if separately identified in such invoice); (iii) credits or refunds actually allowed for rejections, defects or recalls of such Product, outdated or returned Product, or because of rebates or retroactive price reductions; and (iv) sales, value-added, excise taxes, tariffs and duties, and other taxes directly related to the sale, to the extent that such items are included in the gross invoice price (but not including taxes assessed against the income derived from such sale). Such amounts shall be determined from the books and records of NeoTherapeutics, its Affiliates or its sublicensees, maintained in accordance with the reasonable accounting principles used by such entity, consistently applied. In the event that a Product is sold as part of a Combination Product (as defined below), the Net Sales from the Combination Product, for the purposes of determining royalty payments, shall be determined by multiplying the Net Sales of the Combination Product (calculated using the standard Net Sales definition) during the applicable royalty reporting period by the fraction A/A+B, where A is the average sale price of the Product when sold separately in finished form and B is the 2 average sale price of the other product(s) included in the Combination Product when sold separately in finished form, in each case during the applicable royalty reporting period or, if sales of both the Product and the other product(s) did not occur in such period, then in the most recent royalty reporting period in which sales of both occurred. In the event that such average sale price cannot be determined for both the Product and all other product(s) included in the Combination Product, Net Sales for the purposes of determining royalty payments shall be calculated by multiplying the Net Sales of the Combination Product (calculated using the standard Net Sales definition) by the fraction C/C+D, where C is the fair market value of the Product and D is the fair market value of all other pharmaceutical product(s) included in the Combination Product. In such event, NeoTherapeutics shall in good faith make a determination of the respective fair market values of the Product and all other pharmaceutical products included in the Combination Product, and shall notify BMS of such determination and provide BMS with data to support such determination. BMS shall have the right to review such determination and supporting data. If BMS disagrees with such determination, BMS shall notify NeoTherapeutics of such disagreement within 30 days following receipt by BMS of the fair market values determination made by NeoTherapeutics. If the Parties cannot reach agreement as to fair market values within 30 days from the date upon of BMS advises NeoTherapeutics of the disagreement as to fair market values, an independent expert shall be selected by NeoTherapeutics with the consent of BMS (which consent will not be unreasonably withheld) to make the determination of fair market values. The independent expert shall render a determination within 10 days of appointment. As used above, the term "Combination Product" shall mean any pharmaceutical product which comprises the Product and any other active compounds and/or ingredients. 1.13 "Party" shall mean BMS or NeoTherapeutics and, when used in the plural, shall mean BMS and NeoTherapeutics. 1.14 "Patents" shall mean all patents and patent applications throughout the Territory, and any substitutions, extensions, renewals, continuations, continuations-in-part, divisions, patents-of-addition and/or reissues or extensions thereof, which are (i) at present owned or controlled by BMS and are set forth in Exhibit A, or (ii) are owned or controlled by NeoTherapeutics, jointly by BMS and NeoTherapeutics, or jointly by a Third Party and NeoTherapeutics, as the case may be, and cover any Improvements. 1.15 "Person" shall mean any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or any agency or political subdivision thereof. 1.16 "Product" shall mean any pharmaceutical formulation developed by NeoTherapeutics, its Affiliates or sublicensees during the term of this Agreement, the manufacture, use or sale of which is either: (i) based upon or derived from any of the Know-How; or (ii) covered by one or more Patents and, but for this Agreement, would constitute an infringement of a Valid Claim thereof. 1.17 "Results" shall mean any and all technical data, information, material and other know-how, whether patentable or not, including but not limited to analytical methodology, 3 chemical, toxicological, pharmacological and clinical data, formulae, procedures, drafts and/or protocols, techniques, and results of experimentation and testing, developed or acquired by NeoTherapeutics, its Affiliates or sublicensees during the term of this Agreement which relate to the Licensed Technology, except Improvements. "Results" shall include data and information generated for the purpose of obtaining marketing approvals of the Products in any country in the Territory. The Results shall be owned by NeoTherapeutics. 1.18 "Royalty Term" shall mean, with respect to each Product in each country in the Territory, the period of time commencing on the Effective Date and ending on the date that is the latest of (i) 10 years from the date of the First Commercial Sale of such Product in such country, or (ii) the expiration of the last to expire of the Valid Claims necessary for the manufacture, use and sale of such Product in such country. 1.19 "Territory" shall mean the world. 1.20 "Third Party" shall mean any Person who or which is neither a Party nor an Affiliate of a Party. 1.21 "Valid Claim" shall mean a claim of any Patent which has not been held invalid or unenforceable by final decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which is not admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 2. EXCHANGE OF DATA AND MATERIALS. 2.1 Licensed Technology. As soon as practicable after the Effective Date, but in any event within 90 days thereafter, BMS shall deliver to NeoTherapeutics copies of all data, studies and materials comprising the Licensed Technology then in the possession of or reasonably available to BMS. Apart from the obligation set forth in the foregoing sentence, BMS shall have no obligation to provide any scientific, technical or other consulting or assistance of any kind to NeoTherapeutics with respect to the Licensed Technology. 2.2 Transfer of INDs. Promptly after the Effective Date, but in any event within 90 days thereafter, BMS shall transfer to NeoTherapeutics ownership of all INDs and other regulatory filings, if any, filed by BMS with respect to any products based upon, derived from or related to any of the Know-How or covered by one or more Patents. In addition to such transfer, BMS shall deliver to NeoTherapeutics copies of all material correspondence in its possession directly related to such transferred INDs, including, without limitation, such correspondence to and from the FDA. All INDs and other regulatory filings filed with respect to any Products after the Effective Date shall be owned by NeoTherapeutics. 2.3 Access to Material. As soon as practicable after the Effective Date, but in any event within 90 days thereafter, BMS shall provide to NeoTherapeutics any Material then in the possession of or reasonably available to BMS. EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, THE MATERIAL IS PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY 4 IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIAL WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY. 2.4 Exceptions and Limitations. All of the information exchanged by the Parties pursuant to this Section 2 shall be deemed to be Confidential Information and shall be subject to the confidentiality provisions of Section 11. 3. DEVELOPMENT AND COMMERCIALIZATION. 3.1 Development Obligations. NeoTherapeutics shall, at its own expense, use commercially reasonable efforts to develop Products, which efforts shall include the performance of all studies necessary to obtain approval for at least one indication of such Products from governmental agencies in at least one Major Market where governmental approval is necessary in order to market such indications of such Products. 3.2 Conduct of Development by NeoTherapeutics. During the term of this Agreement, NeoTherapeutics shall: (a) undertake its development obligations, as set forth in this Agreement, and such other activities which are reasonably contemplated to be necessary for the commercial success of the Products; (b) conduct all research pursuant to this Agreement in good scientific manner, and in compliance in all material respects with all requirements of applicable laws, rules and regulations, and all other requirements of any applicable good laboratory or clinical practices to attempt to achieve its objectives efficiently and expeditiously; (c) within 60 days following the end of each twelve-month period during the term of this Agreement, furnish BMS with written status reports, in summary form, on all NeoTherapeutics activities under this Agreement during such twelve-month period; (d) file for marketing approval following the completion of the development of any Product in all Major Markets; and (e) allow representatives of BMS, upon reasonable notice and during normal business hours, to visit the facilities where the research is being conducted; provided that such visits shall not be made more than one time per calendar year. 3.3 Records. NeoTherapeutics shall maintain records, in sufficient detail and in good scientific manner, which shall be complete and accurate and shall fully and properly reflect all work done and results (including, without limitation, the Results) achieved in the performance of its development obligations under this Agreement (including all data in the form required under all applicable laws and regulations). 5 3.4 Commercialization Responsibilities. During the term of this Agreement, following the completion of the development of any Product, NeoTherapeutics and/or its Affiliates or sublicensees shall: (a) Market and sell such Product under a trademark or trademarks owned or acquired by NeoTherapeutics. NeoTherapeutics shall be solely responsible for all matters relating to such trademark(s), including without limitation the registration, maintenance and prosecution of such trademark(s) in each country in the Territory where such Product is being marketed and sold. NeoTherapeutics shall bear all liability of any kind with respect to such trademark(s) and the use of such trademark(s) by NeoTherapeutics, its Affiliates and its sublicensees. (b) Promptly provide BMS with a copy of all reasonably material correspondence to or from health authorities in any country in the Territory relating to any material development affecting such Product (including both its approval and labeling), and, within one month of receipt by NeoTherapeutics, its Affiliates or sublicensees, NeoTherapeutics shall provide, or cause its Affiliates or sublicensees to provide, BMS with copies of all approvals and labeling changes received from the health authorities in any country in the Territory. (c) Initiate a commercial launch and diligently promote the sale of such Product in each Major Market as soon as practicable after: (i) receiving all governmental approvals (including reimbursement price approval, if any) necessary to market and sell such Product in such Major Market; and (ii) NeoTherapeutics reasonably and in good faith determines it can profitably market such Product in such Major Market. In the event NeoTherapeutics (i) determines it can not profitably market such Product in such Major Market, or (ii) has not initiated the commercial launch and diligent promotion of the sale of such Product in such Major Market; in either case, within one year of receiving all governmental approvals (including reimbursement pricing approval, if any, and any appeals or other similar proceedings with respect thereto) necessary to market and sell such Product in such Major Market, then, at the request of BMS, (x) NeoTherapeutics shall grant BMS an exclusive, royalty-free, perpetual license (with the unrestricted right to grant sublicenses) to exploit the Improvements to develop, use, make, have made, import, register, market, distribute and sell such Product in such Major Market, (y) NeoTherapeutics shall transfer to BMS all approvals necessary or useful for the commercial launch and/or promotion of the sale of such Products in such Major Market, and (z) the license and rights granted to NeoTherapeutics and its sublicenses under Sections 4.1 and 4.2 shall terminate as to such Product in such Major Market. 4. GRANT OF LICENSE AND OTHER RIGHTS. 4.1 License Grant. Subject to the terms and conditions of this Agreement, BMS hereby grants to NeoTherapeutics an exclusive right and license under the Licensed Technology, to make, have made, use, offer to sell, sell and have sold Products in the Territory. BMS shall retain no right to use the Licensed Technology to make, use or sell Products in the Territory; provided, that BMS shall retain all rights to exploit the Licensed Technology to develop, use, make, have made, import, register, market, distribute and sell any product in the Territory that is not a Product. 4.2 Right to Sublicense. 6 (a) Subject to Sections 4.2(b) and (c), NeoTherapeutics shall have the right to grant sublicenses, without restriction on use, to Third Parties under the rights and licenses granted to NeoTherapeutics under this Agreement. In the event of any such sublicensing, within 30 days of the effective date of each sublicense (or modification of a sublicense) NeoTherapeutics shall submit to BMS a copy of such sublicense (or modification thereof) and evidence acceptable to BMS of such sublicensee's insurance coverage (such insurance coverage to be in accordance with Section 10.5). (b) NeoTherapeutics shall be primarily responsible for all payments due and the making of reports under this Agreement by its sublicensees and shall guarantee their compliance with all applicable terms of this Agreement. Each prospective sublicensee shall agree in writing (i) to maintain insurance coverage at the same levels and on the same terms and conditions as set forth in Section 10.5, which insurance shall name BMS as an additional insured and (ii) to keep books and records and permit BMS to review such books and records pursuant to Sections 6.3, 6.4 and 6.5 and to observe all other applicable terms of this Agreement. (c) In the event of a breach by a sublicensee of NeoTherapeutics in the observance of applicable terms of this Agreement, BMS shall be entitled to proceed, at the sole discretion of BMS, against such sublicensee and/or NeoTherapeutics to enforce this Agreement. In furtherance of the foregoing and the rights of BMS thereunder, each sublicense granted by NeoTherapeutics pursuant to this Section 4.2 shall explicitly provide that BMS is a third party beneficiary of such sublicense. 5. INITIAL PAYMENT; ROYALTIES. 5.1 Initial Payment. In partial consideration of the right and license granted by BMS to NeoTherapeutics under this Agreement, NeoTherapeutics shall pay BMS a license fee of $100,000 within 10 days after the date of this Agreement (the date on which such payment is made, the "Effective Date"). Notwithstanding any other provision of this Agreement, such fee shall be non-refundable and non-creditable against any other payments to be made by NeoTherapeutics under this Agreement. 5.2 Milestone Payments. As further consideration of the right and license granted by BMS to NeoTherapeutics under this Agreement, NeoTherapeutics shall pay to BMS the following non-refundable milestone payments upon the first occurrence of each event set forth below with respect to a Product: (a) a one-time payment of $200,000 upon the commencement of Phase III clinical trials (enrollment of the first patient); (b) a one-time payment of $200,000 upon the first filing of a new drug application with either the FDA or any equivalent foreign regulatory authority, which ever occurs first; and 7 (c) a one-time payment of $500,000 upon first receipt of approval of a new drug application by either the FDA or any equivalent foreign regulatory authority, whichever occurs first. Each of the milestone payments required pursuant to this Section 5.2 shall be paid within 10 days after such milestone has been achieved. 5.3 Royalties. In further consideration of the right and license granted by BMS to NeoTherapeutics under this Agreement, subject to Sections 5.5 and 8.1(b), during the Royalty Term, NeoTherapeutics shall pay to BMS a royalty on Net Sales of Products commencing on the First Commercial Sale of any Product by NeoTherapeutics, its Affiliates or its sublicensees in any country in the Territory, with respect to Products covered by Licensed Technology, at the rate of 10%. 5.4 Third Party Royalties. NeoTherapeutics, at its sole expense, shall pay all royalties accruing to any Third Party after the Effective Date that result from NeoTherapeutics's or its Affiliates' or sublicensees' activities and that NeoTherapeutics determines, in its reasonable business judgment, are necessary in order to exercise NeoTherapeutics's rights hereunder to make, have made, use, sell or have sold any Product (all such royalties, "Third Party Royalties"). 5.5 Reduction for Generic Competition. With respect to any country in the Territory where a Product is a Generic Product, the royalties payable to BMS under Section 5.2 with respect to Net Sales of such Product in such country shall be reduced. The amount of such reduction shall be determined by reference to the following table and the market penetration, which Third Party or Parties have, in the aggregate, achieved through sales of such Generic Product, shown as a percentage of the unit volume of sales for such Product in any calendar quarter in such country, as measured by IMS, commencing with the calendar quarter during which such Product first becomes a Generic Product in such country. Such reduction shall be in lieu of any other reduction with respect to such royalties under this Agreement to which NeoTherapeutics otherwise would be entitled.
MARKET PENETRATION ROYALTY REDUCTION ------------------ ----------------- 20% 50% 30% 75% 40% 100%
5.6 Obligation to Pay Royalties. There shall be no obligation to pay royalties to BMS under this Section 5 on sales of Products among NeoTherapeutics, its Affiliates and its sublicensees, but in such instances the obligation to pay royalties shall arise upon the sale by NeoTherapeutics, its Affiliates or its sublicensees to unrelated Third Parties. 6. PAYMENTS AND REPORTS. 8 6.1 Payment. All royalty payments payable to BMS under this Agreement shall be paid quarterly within 60 days of the end of each calendar quarter. Each such payment shall be accompanied by a statement, Product-by-Product and country-by-country of the amount of Net Sales during such quarter and the amount of royalties due on such Net Sales. 6.2 Mode of Payment. NeoTherapeutics shall make all payments required under this Agreement as directed by BMS from time to time in U.S. Dollars. Whenever for the purpose of calculating royalties, conversion from any foreign currency shall be required, such conversion shall be at the rate of exchange published in The Wall Street Journal, Eastern U.S. edition, for the last business day of the calendar quarter in which such sales were made. 6.3 Records Retention. NeoTherapeutics, its Affiliates and its sublicensees shall keep complete and accurate records (specifically including originals or copies of documents supporting entries in the books of account) pertaining to the sale of Products in the Territory and covering all transactions from which Net Sales are derived for a period of three calendar years after the year in which such sales occurred, and in sufficient detail to permit BMS to confirm the accuracy of royalty calculations hereunder. 6.4 Audit Request. At the request of BMS, NeoTherapeutics, its Affiliates and its sublicensees shall permit an independent certified public accountant appointed by BMS, at reasonable times and upon reasonable notice (but in no event more than once per calendar year), to examine those records and all other material documents relating to or relevant to Net Sales in the possession or control of NeoTherapeutics, its Affiliates or its sublicensees, for a period of three years after such royalties have accrued, as may be necessary to: (i) determine the correctness of any report or payment made under this Agreement; or (ii) obtain information as to the royalties payable for any calendar quarter in the case of NeoTherapeutics's failure to report or pay pursuant to this Agreement. Said accountant shall not disclose to BMS any information other than information relating to said reports, royalties, and payments. The results of any such examination shall be made available to both Parties. BMS shall bear the full cost of the performance of any such audit except as hereinafter set forth. If, as a result of any inspection of the books and records of NeoTherapeutics or its Affiliates or its sublicensees, it is shown that NeoTherapeutics's royalty payments under this Agreement were less than the amount which should have been paid, then NeoTherapeutics shall make all payments required to be made to eliminate any discrepancy revealed by said inspection within 15 days after demand of BMS therefor. Furthermore, if the royalty payments made by NeoTherapeutics were less than 95% of the amount of royalty payments which should have been paid with respect to the period in question, NeoTherapeutics shall also reimburse BMS for the cost of such examination. 6.5 Taxes. All payments due under this Agreement shall be paid in full without deduction except for withholding taxes, if any, required by law in any country in the Territory with respect to such payment. In the event that NeoTherapeutics is required to withhold any tax to the revenue authorities in any country in the Territory regarding any payment to BMS due to the laws of such country, such amount shall be deducted by NeoTherapeutics, and it shall notify BMS and promptly furnish BMS with copies of any tax certificate or other documentation evidencing such withholding. 9 6.6 Interest on Late Payments. NeoTherapeutics shall pay interest on any payment to BMS under this Agreement that is not made by the date due hereunder at a rate equal to the prime rate plus 2%, compounded quarterly, obtained from The Wall Street Journal, Eastern U.S. edition, on the business day next preceding the date such payment was due, from such date until payment in full has been made. 7. REPRESENTATIONS AND WARRANTIES. 7.1 Representations and Warranties of Both Parties. Each Party represents and warrants to the other Party that: (i) it is free to enter into this Agreement; (ii) in so doing, it will not violate any other agreement to which it is a party; (iii) it has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; and (iv) to the knowledge of BMS (without any obligation to conduct any inquiry), the information delivered to NeoTherapeutics pursuant to Sections 2.1 and 2.2, as and when delivered, is true and correct in all material respects. 7.2 BMS Disclaimer of All Representations and Warranties. EXCEPT AS SET FORTH IN SECTION 7.1, BMS DOES NOT MAKE ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF QUALITY, PERFORMANCE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, WITH RESPECT TO THE LICENSED TECHNOLOGY, THE PRODUCTS OR ANY MATERIALS TRANSFERRED TO NEOTHERAPEUTICS UNDER THIS AGREEMENT. Except as expressly set forth herein, NeoTherapeutics acknowledges and agrees that BMS is licensing the Licensed Technology to NeoTherapeutics strictly on an "AS IS, WHERE IS" basis and that NeoTherapeutics shall have no claims or causes of action of any kind against BMS with respect thereto. 8. PATENTS; IMPROVEMENTS. 8.1 Patent Filing, Maintenance and Prosecution. NeoTherapeutics shall have the right, in its sole discretion and at its sole cost and expense, to determine whether to prosecute or maintain any Patents regarding the Licensed Technology or the Products. "Patents" shall mean any and all patents and patent applications throughout the Territory, and any substitutions, extensions, renewals, continuations, continuations-in-part, divisions, patents-of-addition and/or reissues or extensions thereof, which may be prosecuted or maintained by NeoTherapeutics or jointly by BMS and NeoTherapeutics, as the case may be, relating to the Licensed Technology or Products, and cover any Improvements. With regard to any Patent issued jointly to the Parties, NeoTherapeutics shall have the exclusive right to license all of BMS's rights to such jointly owned Patent. 8.2 Information; Consultation; Cooperation. (a) With respect to the filing, prosecution and maintenance of any Patent pursuant to Section 8.1(a), the filing Party shall keep the other Party informed of its decisions and actions in this regard by providing a report thereof to such other Party. Further, in connection with any such filing, prosecution or maintenance by either Party, such Party shall consult with the other Party and in good faith consider and give due respect to such other Party's position with respect 10 thereto. In the event that the sole owning or controlling Party elects not to file for patent protection or prosecute or maintain any Patent pursuant to Section 8.1(a) and the other Party elects to do so, such owning or controlling Party shall cooperate with the other Party in such filing, prosecution or maintenance. (b) In addition, with respect to the filing, prosecution and maintenance of any Patent pursuant to Section 8.1(a) that covers an Improvement by a Party that does not solely own such Improvement, the filing Party shall cooperate with the other Party in determining strategies for such filing, prosecution and maintenance, and the filing Party shall make its patent counsel available for consultation with patent counsel for the other Party for this purpose. 8.3 Improvements. Improvements that are made by an employee or agent of NeoTherapeutics, solely or jointly other than with an employee or agent of BMS, shall be owned by NeoTherapeutics. Improvements that are made jointly by employees or agents of NeoTherapeutics and BMS shall be jointly owned by NeoTherapeutics and BMS and treated as joint inventions under U.S. laws applicable to joint inventions. As to BMS, Improvements that are made jointly by employees or agents of NeoTherapeutics and any Third Party shall be owned by NeoTherapeutics. Except as otherwise set forth in this Agreement, each of BMS and NeoTherapeutics shall retain its unrestricted rights to make, have made, use, sell and have sold all Improvements that are owned by it solely, jointly with the other Party or jointly by NeoTherapeutics and a Third Party. 9. PATENT ENFORCEMENT; INFRINGEMENT. 9.1 Patent Enforcement. As soon as it shall have knowledge thereof, each Party shall promptly advise the other Party of any infringement of the Patents in the Territory by a Third Party. With respect to any Patent that is licensed to NeoTherapeutics under this Agreement or any Patent claiming or covering an Improvement (regardless of the ownership of such Patent), NeoTherapeutics shall have the first right, but not the duty, to institute infringement actions against Third Parties. If the Party having the first right to institute an infringement proceeding against an offending Third Party does not do so within 90 days after receipt of notice from the other Party, such other Party shall have the right, but not the duty, to institute such an action. The costs and expenses of any such action (including reasonable fees of attorneys and other professionals) shall be borne by the Party instituting the action, or, if the Parties elect to cooperate in instituting and maintaining such action, such costs and expenses shall be borne by the Parties in such proportions as they may agree in writing. Each Party shall execute all necessary and proper documents and take such actions as shall be appropriate to allow the other Party to institute and prosecute such infringement actions. Any award paid by Third Parties as a result of such an infringement action (whether by way of settlement or otherwise) shall be paid to the Party who instituted and maintained such action, or, if both Parties instituted and maintained such action, such award shall be allocated among the Parties in proportion to their respective contributions to the costs and expenses incurred in such action. 9.2 Infringement Action by Third Parties. As soon as it shall have knowledge thereof, each Party shall promptly advise the other Party of any infringement action instituted by a Third Party with respect to any Product or of any grounds for any such action, regardless of whether such action has been instituted. In the event of the institution of any suit by a Third Party against NeoTherapeutics for patent infringement involving the manufacture, sale, distribution or marketing 11 of any Product in the Territory, NeoTherapeutics shall have the right to defend such suit at its own expense, and BMS hereby agrees to assist and cooperate with NeoTherapeutics, at its own expense, to the extent necessary in the defense of such suit. For so long as BMS shall continue to provide such assistance and cooperation at its expense, NeoTherapeutics shall not enter into any settlement arrangement or other amicable arrangement without the prior written consent of BMS. During the pendency of such action, NeoTherapeutics shall continue to make all payments due under this Agreement. If, as a result of any judgment, award, decree or settlement resulting from an action instituted by a Third Party, NeoTherapeutics is required to pay damages and/or a royalty to such Third Party, NeoTherapeutics shall be solely responsible for the payment of such damages and/or such royalties for such Products to such Third Party and shall continue to pay royalties pursuant to this Agreement in the country which is the subject of such action. Any payment made to a Third Party pursuant to this Section shall not be deemed to be Third Party Royalties. 10. INDEMNIFICATION. 10.1 By NeoTherapeutics. NeoTherapeutics, including any successor to NeoTherapeutics, shall, and shall obligate its Affiliates or its sublicensees, if any, to, indemnify and hold BMS and its Affiliates, and their respective directors, officers, employees and agents harmless from and against any and all liability, damage to or loss of property or injury to or death of any person or persons, costs and expenses (including reasonable attorney's fees) resulting from claims arising out of: (a) negligence, recklessness or wrongful intentional acts or omissions of NeoTherapeutics, its Affiliates or its sublicensees, if any, and their respective directors, officers, employees and agents, in connection with the use or development of any Licensed Technology or Patents claiming or covering Improvements; or (b) any warranty claims, Product recalls or any tort claims of personal injury (including death) or property damage relating to or arising out of the manufacture, use, distribution or sale of any Product or services by NeoTherapeutics, its Affiliates or its sublicensees, if any, due to any negligence, recklessness or wrongful intentional acts or omissions by, or strict liability of, NeoTherapeutics, its Affiliates or its sublicensees, if any, and their respective directors, officers, employees and agents. 10.2 By BMS. (a) BMS shall, and shall obligate its Affiliates to, indemnify, defend, and hold NeoTherapeutics, its Affiliates, and their respective directors, officers, employees and agents harmless from and against any and all liability, damage to or loss of property or injury to or death of any person or persons, costs and expenses (including reasonable attorney's fees) resulting from claims arising out of gross negligence, recklessness or wrongful intentional acts or omissions of BMS, its Affiliates or its sublicensees, if any, and their respective directors, officers, employees and agents, in connection with the use or development of any Licensed Technology or Patents claiming or covering Improvements. 12 (b) In the event that BMS makes, has made, uses, sells or has sold any Product pursuant to Section 12.5(c), BMS shall, and shall obligate its sublicensees, if any, to, indemnify NeoTherapeutics and its Affiliates, and their respective directors, officers, employees and agents with respect thereto to the same extent as the indemnification required to be provided by NeoTherapeutics in Section 10.1. 10.3 Notice. In the event that either Party is seeking indemnification under Section 10.1 or Section 10.2, such Party shall inform the indemnifying Party of a claim as soon as reasonably practicable after it receives notice of the claim, shall permit the indemnifying Party to assume direction and control of the defense of the claim (including the sole right to settle it at the sole discretion of the indemnifying Party, provided that such settlement does not impose any obligation on the indemnified Party), and shall cooperate as requested (at the expense of the indemnifying Party) in the defense of the claim. 10.4 Complete Indemnification. As the Parties intend complete indemnification, all costs and expenses of enforcing this Section 10 shall also be reimbursed by the indemnifying Party. 10.5 Insurance. (a) In furtherance and not in limitation of any indemnity obligations of NeoTherapeutics under this Agreement: (i) commencing on the Effective Date and thereafter for the period of time required hereinbelow, each of NeoTherapeutics and its sublicensees shall obtain and maintain on an on-going basis their own insurance policies for comprehensive general liability insurance in the amount of $1,000,000 per occurrence and $2,000,000 annual aggregate combined single limit for bodily injury and property damage liability; and (ii) commencing not later than 30 days prior to the first use in humans of the first potential Product and thereafter for the period of time required hereinbelow, each of NeoTherapeutics and its sublicensees shall obtain and maintain on an on-going basis their own insurance policies for products liability insurance (including contractual liability coverage of such party's indemnification obligations under this Agreement and any sublicense agreements) in the amount of at least $25,000,000 per occurrence and annual aggregate combined single limit for bodily injury and property damage liability. All of such insurance coverage shall be maintained with a insurance company or companies having an A. M. Best rating of "A-" or better and an aggregate deductible not to exceed $100,000 per occurrence. (b) Not later than the Effective Date with respect to the comprehensive general liability coverage, and not later than 30 days prior to the first use in humans of the first potential Product with respect to the products liability coverage, each of NeoTherapeutics and its sublicensees shall provide to BMS a certificate(s) evidencing all such required coverage hereunder. Thereafter each of NeoTherapeutics and its sublicensees shall maintain such insurance coverage without interruption during the term of this Agreement and for a period of at least 10 years after the expiration or termination of the term and shall provide certificates evidencing such insurance coverage without interruption on an annual basis (by no later than the annual renewal date for such coverage) during the period of time for which such coverage must be maintained. 13 (c) Each of NeoTherapeutics's and its sublicensees' insurance shall name BMS as an additional insured, shall state that such insurance is primary to any valid and collectible insurance available to BMS that also insures the same loss for which NeoTherapeutics and/or its sublicensees has liability pursuant to this Agreement and/or the sublicense agreements (including, without limitation, under applicable indemnification provisions in such agreements), shall contain a cross-liability or severability of interest clause, and shall state that BMS shall be provided at least 60 days' prior written notice of any cancellation or material change in the insurance policy. Each of NeoTherapeutics and its sublicensees shall promptly provide BMS with a copy of all communications passing between such inured party and the carrier(s) providing the coverage required under this Section 10.5. The failure of NeoTherapeutics's or any of its sublicensees to comply with the provisions of this Section 10.5 shall be deemed to be a material breach of this Agreement. 11. CONFIDENTIALITY. 11.1 Confidentiality; Exceptions. Except to the extent expressly authorized by or required for the performance of this Agreement or otherwise agreed in writing, the Parties agree that, for the term of this Agreement and for five years thereafter the receiving Party, its Affiliates and its sublicensees (collectively, the "receiving Party") shall keep, and shall ensure that its officers and directors keep, completely confidential and shall not publish or otherwise disclose and shall not use for any purpose inconsistent with this Agreement any information furnished to it by the disclosing Party, its Affiliates or its sublicensees that is marked as confidential or, if furnished orally, that the disclosing Party notifies the receiving Party is confidential within 30 days after such information is furnished, or any information developed pursuant to this Agreement (collectively, "Confidential Information"). This Section 11.1 shall not apply to information that the receiving Party can establish: (i) is or hereafter becomes generally available to the public other than by reason of any default with respect to a confidentiality obligation; (ii) was already known to the receiving Party when disclosed by the disclosing Party, as evidenced by prior written records; or (iii) is disclosed to the receiving Party by a Third Party who reasonably was not known by the receiving Party to be in default of any confidentiality obligation to the disclosing Party. 11.2 Exceptions. (a) The restrictions contained in Section 11.2 shall not apply to Confidential Information that (i) is submitted by the receiving Party to governmental authorities to facilitate the issuance of marketing approvals for a Product, provided that reasonable measures shall be taken to assure confidential treatment of such information; (ii) is provided by the receiving Party to Third Parties under appropriate terms and conditions, including confidentiality provisions equivalent to those in this Agreement, for consulting, manufacturing development, manufacturing, external testing and marketing trials; or (iii) is otherwise required to be disclosed in compliance with applicable laws or regulations or order by a court or other regulatory body having competent jurisdiction; provided that if a receiving Party is required to make any such disclosure of the other Party's Confidential Information it will, except where impracticable for necessary disclosures, for example to physicians conducting studies or to health authorities, give reasonable advance notice to the other Party of such disclosure requirement and, except to the extent inappropriate in the case 14 of patent applications, will use its best efforts to secure confidential treatment of such Confidential Information required to be disclosed. (b) Nothing in Section 11.2 shall prevent NeoTherapeutics: (i) in connection with efforts to secure financing at any time during the term of this Agreement, from issuing statements and sharing information as to NeoTherapeutics's agreements with BMS, achievements made, and the status of the work being done, under this Agreement, so long as such statements or information do not jeopardize the ability to obtain patent protection on Improvements or disclose technical or scientific Confidential Information; or (ii) from issuing statements that NeoTherapeutics determines to be necessary to comply with applicable law (including the disclosure requirements of the U.S. Securities and Exchange Commission, Nasdaq or any other stock exchange on which securities issued by NeoTherapeutics are traded); provided that, in the case of statements made to or information shared with the general public, to the extent practicable under the circumstances, NeoTherapeutics shall provide BMS with a copy of the proposed text of such statements sufficiently in advance of the scheduled release thereof to afford BMS a reasonable opportunity to review and comment upon the proposed text. 11.3 Limitations on Use. Each Party shall use, and cause each of its Affiliates and its sublicensees to use, any Confidential Information obtained by it from the other Party, its Affiliates or its sublicensees, pursuant to this Agreement or otherwise, solely in connection with the activities or the transactions contemplated hereby. 11.4 Remedies. Each Party shall be entitled, in addition to any other right or remedy it may have, at law or in equity, to an injunction, without the posting of any bond or other security, enjoining or restraining the other Party, its Affiliates and/or its sublicensees from any violation or threatened violation of this Section 11. 12. TERM; TERMINATION. 12.1 Term. The term of this Agreement shall commence as of the Effective Date and, unless sooner terminated as provided hereunder, shall terminate as follows: (a) As to each Product in each country in the Territory, this Agreement shall terminate upon the expiration of the Royalty Term. (b) This Agreement shall terminate in its entirety upon its termination in all countries in the Territory. 12.2 Termination by NeoTherapeutics. NeoTherapeutics shall have the right to terminate this Agreement in its entirety at any time by giving written notice thereof to BMS, which shall be effective 30 days from the date such notice is given. 12.3 Breach. Failure by either Party to comply with any of the material obligations contained in this Agreement shall entitle the other Party to give to the Party in default notice specifying the nature of the default and requiring it to cure such default. If such default is not cured within 60 days after the receipt of such notice (or, if such default cannot be cured within such 60-day period, if the Party in default does not commence and diligently continue actions to cure such 15 default), the notifying Party shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement and in addition to any other remedies available to it by law or in equity, to terminate this Agreement by giving written notice to take effect immediately upon delivery of such notice. The right of either Party to terminate this Agreement, as hereinabove provided, shall not be affected in any way by its waiver or failure to take action with respect to any previous default. 12.4 Failure to Maintain Insurance. This Agreement shall terminate automatically and without necessity of any action by either Party in the event that (i) NeoTherapeutics fails to maintain all insurance coverage that it is required to maintain under Section 10.5, or (ii) a sublicensee of NeoTherapeutics fails to maintain all insurance coverage that it is required to maintain under Section 4.2(b) and NeoTherapeutics does not, prior to the cancellation or non-renewal of such coverage, either (A) terminate such sublicense, or (B) obtain the requisite coverage on behalf and for the benefit of such sublicense, unless, in each event, such termination of this Agreement is waived in writing by BMS. 12.5 Effect of Termination. (a) Following the expiration of NeoTherapeutics's obligation to pay royalties with respect to any Product in any country in the Territory pursuant to Section 12.1(a), NeoTherapeutics shall have the royalty-free, non-exclusive, perpetual right and license to continue to use the Licensed Technology to make, have made, use, sell and have sold such Product in such country. (b) Following the expiration of the term of this Agreement in its entirety pursuant to Section 12.1(b), NeoTherapeutics shall have the royalty-free, non-exclusive, perpetual right and license to continue to use the Licensed Technology to make, have made, use, sell and have sold the Product in all countries in the Territory. (c) Upon the termination of this Agreement by BMS pursuant to Section 12.3, or automatically pursuant to Section 12.4, NeoTherapeutics shall promptly: (i) return to BMS all relevant records, materials or confidential information, including the Results, concerning the Patents, the Know-How and any Products in the possession or control of NeoTherapeutics or any of its Affiliates or sublicensees; and (ii) assign to BMS, or the designee of BMS, its registrations with governmental health authorities, licenses, and approvals of the Products in the Territory, at NeoTherapeutics's sole expense. Thereafter, NeoTherapeutics shall have no rights whatsoever to use the Licensed Technology for any purpose. 12.6 Termination of Sublicenses. Except as otherwise expressly provided in this Agreement, upon any termination of this Agreement, all sublicenses granted by NeoTherapeutics under this Agreement shall terminate simultaneously. Upon any termination of this Agreement for any reason, except a termination by BMS due to a breach of this Agreement by NeoTherapeutics where such breach has been contributed to by any act or omission by a sublicensee, any sublicensee (except such a contributing sublicensee) may assume all of NeoTherapeutics's obligations under this Agreement (including, without limitation all past amounts due and breaches requiring cure) and, upon such assumption, such sublicensee's rights under this Agreement shall be limited to the territory and field of such sublicensee's sublicense grant from NeoTherapeutics. If such sublicensee 16 desires to assume such obligations of NeoTherapeutics, such sublicensee must execute and deliver a copy of this Agreement (reflecting any limit on sublicensee's territory and field) to BMS within 30 days of receiving notice of such termination from BMS. 12.7 Accrued Rights, Surviving Obligations. (a) Termination, relinquishment or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of either Party prior to such termination, relinquishment or expiration. Such termination, relinquishment or expiration shall not relieve either Party from obligations which are expressly indicated to survive termination or expiration of this Agreement. (b) Termination of this Agreement shall not terminate NeoTherapeutics's obligation to make all payments which have accrued through the date of such termination. All of the Parties' rights and obligations under Sections 2.4, 3.3, 6, 7.2, 8.4, 9, 10, 11, 12.5, 12.6, 12.7, 14.14 and 14.15 shall survive termination. 13. FORCE MAJEURE. 13.1 Events of Force Majeure. Neither Party shall be held liable or responsible to the other Party or be deemed to be in default under or in breach of any provision of this Agreement for failure or delay in fulfilling or performing any obligation of this Agreement when such failure or delay is due to force majeure, and without the fault or negligence of the Party so failing or delaying. For purposes of this Agreement, force majeure shall be defined as causes beyond the control of the Party, including, without limitation, acts of God; acts, regulations, or laws of any government; war; civil commotion; destruction of production facilities or materials by fire, flood, earthquake, explosion or storm; labor disturbances; epidemic; and failure of public utilities or common carriers. In such event NeoTherapeutics or BMS, as the case may be, shall immediately notify the other Party of such inability and of the period for which such inability is expected to continue. The Party giving such notice shall thereupon be excused from such of its obligations under this Agreement as it is thereby disabled from performing for so long as it is so disabled and the 30 days thereafter. However, the Party giving such notice shall use all reasonable efforts to remedy such inability as soon as reasonably possible or seek an alternative arrangement during the period of such inability. 14. MISCELLANEOUS. 14.1 Relationship of Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the Parties. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein. 14.2 Assignment. Neither Party shall be entitled to assign its rights hereunder without the express written consent of the other Party hereto, except that both NeoTherapeutics and BMS may otherwise assign their respective rights and transfer their respective duties hereunder to any assignee of all or substantially all of their respective businesses or in the event of their respective 17 merger or consolidation or similar transaction. No assignment and transfer shall be valid and effective unless and until the assignee/transferee shall agree in writing to be bound by the provisions of this Agreement. Any assignment not in accordance with this Section 14.2 shall be void. 14.3 Binding Effect. This Agreement shall be binding upon the successors and permitted assigns of the Parties and the name of a Party appearing herein shall be deemed to include the names of such Party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. 14.4 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 14.5 Costs and Expenses. Except as otherwise expressly provided in this Agreement, each Party shall bear all costs and expenses associated with the performance of such Party's obligations under this Agreement. 14.6 Inconsistency. If there is any inconsistency between the provisions of this Agreement and any other document passing between the Parties, the provisions of this Agreement shall control and be determinative. 14.7 Notice. Any notice, request or other communication required or permitted to be given under or in connection with this Agreement shall be deemed to have been sufficiently given if in writing and personally delivered or sent by registered or certified mail (return receipt requested), facsimile transmission (receipt verified), express courier service (signature required), or telegram, prepaid, to the Party for which such notice is intended, at the address set forth for such Party below: (a) In the case of BMS, to: Bristol-Myers Squibb Company P.O. Box 4000 Route 206 & Province Line Road Princeton, New Jersey 08543-4000 Attention: Vice President & Senior Counsel, Pharmaceutical Research Institute and Worldwide Strategic Business Development Facsimile No.: (609) 252-4232 (b) In the case of NeoTherapeutics, to: NeoTherapeutics Inc. 157 Technology Drive Irvine, California 92618 Attention: President 18 Facsimile No.: (949) 788-6706 or to such other address for such Party as it shall have specified by like notice to the other Party, provided that notices of a change of address shall be effective only upon receipt thereof. If sent by mail, facsimile transmission, express courier service, or telegram, the date of mailing or transmission shall be deemed to be the date on which such notice or request has been given. 14.8 Use of Name. Except as otherwise provided herein, neither Party shall have any right, express or implied, to use in any manner the name or other designation of the other Party or any other trade name or trademark of the other Party for any purpose in connection with the performance of this Agreement. 14.9 Public Announcements. Except as required by law, neither Party shall make any public announcement concerning this Agreement or the subject matter hereof prior to the Effective Date. Thereafter, neither Party shall make any such public announcement without the prior written consent of the other, which shall not be unreasonably withheld. In the event of a required public announcement, the Party making such announcement shall provide the other Party with a copy of the proposed text prior to such announcement sufficiently in advance of the scheduled release of such announcement to afford such other Party a reasonable opportunity to review and comment upon the proposed text. Following approval of a proposed text, such text may be used in subsequent public announcements without further approval, to the extent it remains accurate, complete and not misleading. 14.10 Waiver. A waiver by either Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 14.11 Compliance with Law. Nothing in this Agreement shall be deemed to permit a Party to: (i) import, export, reexport, store, sell, distribute or otherwise transfer any Product sold under this Agreement without compliance with applicable laws; or (ii) make any claims with respect to any Product, in promotional materials or otherwise, in any country that is inconsistent with applicable laws. 14.12 Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. In such event, the Parties agree to substitute a valid and enforceable provision therefor which, as nearly as possible, achieves the desired economic effect and mutual understanding of the Parties under this Agreement. 14.13 Amendment. No amendment, modification or supplement of any provisions of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 19 14.14 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, without regard to any choice of law principles. 14.15 Arbitration. (a) Any dispute arising out of or relating to any provisions of this Agreement shall be finally settled by arbitration to be held in New York, New York, under the auspices and then current commercial arbitration rules of the American Arbitration Association. Such arbitration shall be conducted by three arbitrators appointed according to said rules. The Parties shall instruct such arbitrators to render a determination of any such dispute within 90 days after their appointment. Judgment upon any award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (b) Section 14.15(a) shall not prohibit a Party from seeking injunctive relief from a court of competent jurisdiction in the event of a breach or prospective breach of this Agreement by the other Party which would cause irreparable harm to the first Party. 14.16 Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Parties as to the subject matter hereof and merges all prior discussions and negotiations between them, and neither of the Parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized officer or representative of the Party to be bound thereby. 14.17 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original document, and all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile signatures and such signatures shall be deemed to bind each party hereto as if they were original signatures. 14.18 Descriptive Headings. The descriptive headings of this Agreement are for convenience only, and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement. * * * 20 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized officer as of the day and year first above written. BRISTOL-MYERS SQUIBB COMPANY By: /s/ Steven E. Brenner ------------------------------------------ Name: Steven E. Brenner, M.D. ---------------------------------------- Title: Vice President, Licensing --------------------------------------- NEOTHERAPEUTICS INC. By: /s/ Rajesh Shrotriya ------------------------------------------ Name: Rajesh C. Shrotriya, M.D. ---------------------------------------- Title: President and Chief Operating Officer --------------------------------------- 21 EXHIBIT A LICENSED TECHNOLOGY The following U.S. patents relating to elsamitrucin (elsamicin, BMY 28090):
U.S. PATENT NUMBER DESCRIPTION ------------------ ----------- 5,508,268 covers parenteral solution formulations of BMY-28090 (elsamicin) 4,518,589 covers the compound BMY-28090 (elsamicin)
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